GMP (guaranteed minimum pension) are ‘contracted out’ rights built up in a final salary (defined benefits) scheme between 6th April 1978 and 5th April 1997. QROPS (Qualifying Recognized Overseas Pension Schemes), on the other hand, are a more recent concept – introduced on 6th April 2006.
For UK final salary pension schemes, an employer would make the choice as to whether their employees national insurance contributions (NICs), that were earmarked to contribute to the second tier of the basic state pension, would be re-directed into the final salary scheme or not. If the NICs were redirected to the scheme, the scheme would then be considered a Contracted Out Final Salary Scheme (COSR). The benefits built up in this fashion (between April 1978 and April 1997) would provide GMP for the member at retirement.
As Final Salary schemes are gradually phased out, and as time passes, the amount of people with GMP benefits will become rare. Their will be, however, some people migrating that will have GMP in their pensions and will look for advice as to whether this benefit can transfer to a QROPS.
Although GMP transfers to QROPS are possible in the majority of circumstances, an individual has to be aware of the benefits that they would be giving up from their final salary scheme by transferring. Most QROPS are likely to be money purchase (defined contribution) arrangements and would be unlikely to match the guarantees.
There are, of course, other considerations – such as tax and flexible benefits – when using a QROPS, therefore an individual with GMP must take suitable advice from a QROPS specialist in the UK when weighing up their options.
