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GMP Increases

The parameters of the GMP Increases topic specify the assumed rates of increase in GMP (Guaranteed Minimum Pension) for both pre-1988 and post-1988 tranches, separately for active status, deferral periods and in-payment periods. GMPs will be applied to active benefits only if a database field is specified for the Pre-88 GMP at valuation date or the Post-88 GMP at valuation date in the Benefit formula section of the active Benefit Definition; GMPs will be applied to inactive benefits only if a database field is specified for the Pre-88 GMP at valuation date or the Post-88 GMP at valuation date within the Inactive Benefit (defined under the Inactive Data topic of the Census Specifications). This topic does not appear if “PPF” applicable law is selected because GMPs are ignored when the PPF liability Is calculated.

Use the Payment period on pre-1988 GMPs section to specify the pension increases on the pre-1988 GMP after GMP age (assumed to be 65 for males and 60 for females). Select the Constant option to specify a single increase rate to apply to all years after GMP age. Alternatively, select the Variable option to specify increase rates that can vary by the contents of a coded database field and/or the calendar year of payment/deferral. The rates can further be specified either as constants or as tables from the COLA Rate Tables Library that have been entered under the Reference Tables command of the Input menu. Select from the list of all the COLA rate reference tables in the current Project or click the button to create a new table. COLA rate tables for payment periods may vary by age, sex and duration (time elapsed) since the commencement of payments. Note that if rates vary by calendar year, it may be attractive to specify variable “<rates by coded field/calendar year>”, where users can combine the formula for determining the pension increases with their assumptions about how the underlying indices will vary by calendar year. However, if the increase rates are a function of the CPI, RPI and/or Section 148, we recommend setting up the increases as Constant and then using the Add, Maximum and Minimum features (described below) to define the formula for determining the increases. Assumptions about how each index is expected to vary by calendar year can then be specified under the Regulatory Items category of the Valuation Assumptions command’s Increase & Crediting Rates topic. This approach can make user inputs easier to check and maintain from year to year.

The Parameters button, to the right of the list of tables and table options for a Variable payment period selection, appears dimmed unless the option to vary according to the contents of a coded database field and/or by calendar year is selected. If this option is selected, clicking the Parameters button accesses additional parameters that must be completed. See Additional COLA Parameters for details.

Check the Add box to add a multiple of the CPI or RPI index. For example, to add 80% of RPI to the increase rate, check the box, select RPI from the drop-down list that becomes accessible and enter a constant of 0.8 in the text field provided. Additionally, there are optional parameters to apply an overall Maximum or Minimum to the increase rate. If a minimum is applied, select whether to set the minimum to be the RPI or CPI, capped at a constant amount per year. The cap will be applied to each annual value of the selected index. A maximum annual rate, if specified, is applied before any specified minimum.

To specify the pension increases on the post-1988 GMP after GMP age, use the parameters in the Payment period on post-1988 GMPs section, which has the same parameters, and options for parameter settings, as the Payment period on pre-1988 GMPs section described above.

Similar options exist for the Deferral period (revaluation) increases. However, after selecting a Constant or Variable increase rate and selecting whether to Add an index times a constant and/or apply a Maximum, different options exist for the Minimum increase rate. After checking the box to apply a minimum increase rate, click the drop-down list to select whether to use Fixed Revaluation or Section 148 Orders, if those indices should be applied as a floor directly. Note that these indices are available in ProVal’s historical regulatory data and overrides for historical data can be entered under the Regulatory Data topic. The third option, Limited Revaluation, will apply the same minimum as the Section 148 Orders option, except that a 5.0% cumulative cap is applied if the date of termination is before 6 April, 1997. For example, a single year’s revaluation at 6.0% would be capped at 5.0%, but two years of revaluation at 6.0% and 4.0%, respectively, would be applied without further limitation, because the cumulative increase of (1.06 * 1.04) -1 = 10.24% is less than the cumulative cap of (1.05 * 1.05) -1 = 10.25%.

If commencement precedes GMP age, several options exist for the Notional GMP method parameter, which defines how the GMP will be calculated at benefit commencement:

If commencement precedes GMP age, several options exist for the Excess at GMP age parameter, which defines how the excess will be calculated at GMP age (“total pension” below refers to the total benefit amount at GMP age, increased with in-payment increases from commencement age to GMP age; note that if multiple pre-97 tranches exist, each is valued separately and the “total pension” below refers to the total within each tranche):

Options for the GMP Increases during Active service are, again, similar to the ones for the deferral and in-payment periods. This time, however, after selecting a Constant or Variable increase rate and selecting whether to Add an index times a constant and/or apply a Maximum, the only valid Minimum index is the published Section 148 Orders.

(Note that if the Variable option is selected for GMP increases for the period of active service or for a deferral period, COLA rate tables that vary by duration may not be specified and thus do not appear in the list of tables available for selection.)

Next, select whether In-payment pension increases apply to either the “Excess pension” (the pension in excess of the GMP) or to the “Total pension”. In addition, enter the Date on which in-payment GMP increases are applied, in order to apply partial years of increase in the case that GMP increases are not constant. For example, if the in-payment GMP increases are applied on 6 April of each year and the initial amount at GMP age is 100.00 on 1/1/2020 (assuming a 1/1 valuation date) with assumed increases of 2% in 2020 and 3% in 2021, the 2020 GMP payment will be calculated as 100.00 * [1 + (0% * 4/12) + (2% * 8/12)] = 101.3333, because the member will receive four payments before the 6 April increase (1 January, 1 February, 1 March and 1 April) and eight payments after the increase. The 2021 GMP payment will be calculated as 101.3333 * [1 + (2% * 4/12) + (3% * 8/12)] = 104.0356, and so forth.