Understanding the Guaranteed Minimum Pensions Increase Order 2025

The UK government has rolled out the Guaranteed Minimum Pensions (GMP) Increase Order for 2025, a crucial piece of legislation aimed at ensuring that certain occupational pensions keep pace with inflation. Here's what you need to know:

What's the Legislation About?

The GMP Increase Order mandates a rise in the Guaranteed Minimum Pension—part of some occupational pensions accrued between 1988 and 1997. This increase is effective from April 6, 2025, and is designed to help pensioners maintain their purchasing power in the face of inflation. The increase is calculated based on the Consumer Price Index (CPI) or capped at 3%, whichever is lower. For 2025, the increase is set at 1.7%, based on the CPI rate for the year leading up to September 2024.

Why Does This Matter?

The UK’s pension system once allowed employers to contract out of the state’s earnings-related pension if they provided a comparable or better occupational scheme. The GMP was a safeguard ensuring that contracted-out occupational pensions offered value similar to what the state system would have provided. Although contracting out ceased in 2016 and no new GMPs have been accrued since 1997, those who earned GMPs still benefit from yearly increases to protect against inflation.

Who is Affected?

The legislation applies across Great Britain, with a similar law expected for Northern Ireland. It impacts pensioners who are part of formerly contracted-out occupational schemes. This includes men aged 65 and over and women aged 60 and over, as well as survivors receiving benefits from such pensions.

No Change in Policy

The 2025 Order does not introduce new policies but continues the government's commitment to protecting the value of pensions against inflation. The approach remains consistent with previous years, ensuring pensioners aren't left worse off due to rising prices.

No Consultation Required

Given that the Order is a technical measure fulfilling a statutory requirement, there's no need for public consultation. The Secretary of State is obliged to lay this Order annually, based on inflation figures, to ensure compliance with the Pension Schemes Act 1993.

Impact and Monitoring

There is no significant new impact on businesses, charities, or the public sector since occupational schemes are already legally required to adjust pensions for inflation. Small businesses are not exempt, as excluding them would disadvantage pensioners reliant on these protections.

Conclusion

The GMP Increase Order 2025 exemplifies the government's ongoing efforts to ensure pensioners' financial stability. By adjusting pensions in line with inflation, it seeks to shield retirees from the eroding effects of rising living costs, fulfilling both a legal obligation and a social commitment.