What is GMP and why is it important in pension planning?

• A. Guaranteed Minimum Pension is a type of investment product.
• B. Guaranteed Minimum Pension historically promised to some groups; affects benefit calculations, transfer decisions, and guarantees.
• C. GMP stands for General Market Pension.
• D. GMP is the maximum pension payable under a scheme.

Answer: (B)

GMP stands for Guaranteed Minimum Pension. It originated as a minimum level of pension that defined benefit schemes had to promise for service earned when the member was contracted out of the state pension system. Because of this, GMP is a distinct part of a pension benefit with its own rules for accrual and increases, and it often needs to be preserved or carefully considered in transfers between schemes. In pension planning, this matters because the GMP portion can affect transfer values and whether benefits are guaranteed, as well as how benefit calculations are carried out when comparing schemes or deciding on retirement timing. The other options miss the point: it isn’t an investment product, it isn’t a general market pension, and it isn’t a maximum pension payable.