Guaranteed Minimum Pension
A Guaranteed Minimum Pension or GMP is best explained as follows. The Social Security Pensions Act 1975, which came into effect on 6th April 1978 provided for the State Retirement Pension to be related to the earnings on which National Insurance contributions were paid. It consisted of two parts:
1. A basic pension, and
2. An additional earnings related pension known as SERPS, now known as S2P.
Pension schemes that provided an approved alternative to S2P could ‘contract out’ of this part of the State pension scheme. By contracting out of S2P members who were under State Pension age paid lower National Insurance contributions. This means that most members who were in employment between 6th April 1978 and 5th April 1997; the date from which the scheme was abandoned, were paying superannuation contributions towards an Occupational Pension instead of paying the full rate National Insurance contributions towards an additional pension from the state. This is what is meant by the term ‘contracted out’.
At 5 April 2016, contracting out ended.