Open consultation

Annex A - Government Actuary’s Department report: Fixed Rate of Revaluation of Guaranteed Minimum Pensions

Published 3 September 2026

Applies to England, Scotland and Wales

1. Executive Summary 

The Government Actuary’s Department (GAD) has been asked by the Department  for Work and Pensions (DWP) for advice on the fixed rate of revaluation of Guaranteed Minimum Pension (GMP) for contracted-out members who leave pensionable service in the period 6 April 2027 to 5 April 2032.

Recommended rate of revaluation

1.1 We propose an assumption for increases in average earnings for members with a GMP who leave pensionable service in the period 6 April 2027 to 5 April 2032 of between  3.0% and 3.5% per annum (pa), based on a short to medium term view for inflation and real earnings growth relevant to the members affected. 

1.2 Given the considerable uncertainty underlying current estimates for inflation and earnings growth, DWP may wish to consider consulting on a range, rather than a specific rate as was done for the previous review, and determining the final rate at a later stage before the rate is finalised ahead of April 2027. However, if DWP prefer to consult on a specific rate, then in our view a rate of 3.25% pa – the same as the current fixed rate, and the mid-point of the range above – would be a reasonable proposed rate.

2. Background

2.1 Schemes have been able to choose between two approaches for the revaluation of GMPs for contracted-out members when leaving pensionable service:

• in line with increases in average earnings (as specified in annual ‘Section 148’ orders)

• in line with a fixed rate (as specified in orders which apply usually for leavers in specified 5-year periods)

2.2 This paper deals with the rate to be determined under the second bullet point in 2.1, for members leaving pensionable service between 6 April 2027 and 5 April 2032.

2.3 The fixed rate of GMP revaluation has historically been set with reference to expected average earnings growth over the long-term – as it is an alternative to Section 148 revaluation, the rates have been set to be broadly comparable over time.

2.4 In the past, fixed rate GMP revaluation has generally been reviewed every 5 years:

Date of leaving	Annual percentage increase
Leavers between 6 April 1978 and 5 April 1988	8.5% pa
Leavers between 6 April 1988 and 5 April 1993	7.5% pa
Leavers between 6 April 1993 and 5 April 1997	7.0% pa
Leavers between 6 April 1997 and 5 April 2002	6.25% pa
Leavers between 6 April 2002 and 5 April 2007	4.5% pa
Leavers between 6 April 2007 and 5 April 2012	4.0% pa
Leavers between 6 April 2012 and 5 April 2017	4.75% pa
Leavers between 6 April 2017 and 5 April 2022	3.5% pa
Leavers between 6 April 2022 and 5 April 2027	3.25% pa

Previous review

2.5 In GAD’s last review of GMP fixed rate revaluation in 2021 we proposed a rate in the range of 3.0% to 3.5%, noting our view that a midpoint of 3.25% pa was a reasonable central assumption.

2.6 The derived assumption was broadly consistent with the Office for Budget Responsibility (OBR) short to medium term earnings assumptions of around 3.0% pa up to 2025 and 3.5% pa thereafter.

2.7 The proposed rate continued to exclude an additional premium of 0.5% pa that had been added to the assumed level of earnings increases for fixed rates of revaluation prior to April 2017. That premium was intended to represent the price of the certainty employers gain from revaluing in line with a fixed rate rather than a variable rate of earnings but was excluded following responses to the consultation issued in October 2016.

2.8 Following GAD’s review, DWP issued a formal consultation in September 2021 proposing a rate of 3.25% pa. The consultation response was published in February 2022, in which the government confirmed that a fixed rate of GMP revaluation of 3.25% pa would be adopted with effect from 6 April 2022.

Time horizon for this review

2.9 Around the time of the review of GMP fixed rate revaluation in 2016, HM Revenue and Customs (HMRC) carried out some analysis indicating the average age of active members of Defined Benefit pension schemes with a start date before 6 April 1997 (the date at which GMP accrual ceased) was around 53 years old. Furthermore, given GMPs ceased to accrue in 1997, the youngest members with GMPs are likely to be in their mid-40s. We therefore concluded it was reasonable to move from a long term view of inflation to a medium term view, which at the time of the 2016 review we considered to be around 10 years, reduced to 7.5 years for the 2021 review.

2.10 Whilst this HMRC analysis does not appear to have been updated since 2016, this is a closed group of members which will now have reduced to a very low level – only those who remain actively accruing benefits in a defined benefit pension scheme they joined at least 30 years ago – and so this previous analysis is still a helpful guide for considering the appropriate time horizon for this review.

2.11 As defined benefit pension schemes mature and the proportion of members with GMPs reduces, and given that active members with GMPs are now much closer to the age at which they will receive their GMP than at the last review 5 years ago, the impact of the choice of fixed rate revaluation has less of an impact on the finances of the scheme. To reflect the maturing profile of active members with GMPs, for this review we look at expected rates of future salary growth over a future period of 5 years, compared to 7.5 years used at the 2021 review.

3. Revaluation

3.1 Consistent with the methodology adopted for the previous review, to determine the expected average earnings increase over the 5-year projection period, we first derive a Consumer Price Index (CPI) inflation assumption and then add on a fixed margin to reflect how we expect earnings to increase in real terms relative to CPI inflation over the relevant period. The methodology we use to derive these assumptions is outlined in paragraph 3.4.

CPI Inflation

3.2 The Bank of England long term target for CPI is 2% pa. This is also consistent with the OBR’s most recent medium-term forecast for CPI published in March 2026.

3.3 However, the Monetary Policy Summary and minutes of the Monetary Policy Committee meeting published by the Bank of England in April 2026 stated that “The conflict in the Middle East means that prospects for global energy prices are highly uncertain … CPI inflation has increased to 3.3%, and is likely to be higher later this year as the effects of higher energy prices pass through.” Given that we are looking at a future term of only 5 years it seems reasonable to make some allowance for CPI being higher than the 2% pa target over the short term.

3.4 The methodology for the calculation of Retail Prices Index (RPI) will be aligned to that for CPIH in February 2030. The changes to the future of the RPI index makes it more difficult to derive a best estimate RPI assumption from market implied inflation, potentially making this a less reliable indicator for future RPI inflation. We therefore consider it appropriate to place more weight on the Bank of England CPI inflation target and OBR forecasts, rather than relying primarily on market implied inflation, although this is still a helpful consideration.

3.5 Bank of England inflation curves as at 31 March 2026 suggest the market expects RPI to be around 3.2% pa on average over the 5 years beginning from 6 April 2027. This needs to be adjusted to reflect: (a) the gap between RPI and CPI – we have assumed this to be 1.0% pa before 2030 and 0.1% pa after 2030

(b) an appropriate inflation risk premium, which is part of a market-implied inflation measure that compensates investors for the uncertainty and risk around future inflation (rather than reflecting the market’s best estimate of what inflation will actually be) – GAD’s best estimate for this is 0.1% pa before 2030 and 0.4% pa after 2030

3.6 Allowing for the RPI-CPI gap and inflation risk premium together, we might expect CPI to be around 1.1% below RPI before 2030, and around 0.5% below RPI after 2030.

3.7 Taking all the above factors into account – including the short term uncertainty, market expectations of implied inflation over the short to medium term and the forthcoming changes in RPI calculation methodology – we would suggest a CPI assumption in the range of 2.25% to 2.5% pa would be reasonable over the 5-year period from 2027 to 2032.

Gap between inflation and earnings

3.8 Analysis of ONS’s average weekly earnings data over the last 10 years shows that the average annual earnings growth was around 4% pa. However, this includes periods of high volatility after the COVID-19 pandemic, and therefore recent actual data may not be a reliable indicator of future earnings growth.

3.9 OBR’s most recent medium-term earnings assumption applying from 2030 is 2.6% pa, which is 0.6% pa above its CPI assumption of 2% pa, with slightly lower forecasts in the years 2027 to 2029, reflecting a smaller gap between CPI inflation and forecast earnings. However, these forecasts do not reflect the emerging volatility from the Middle East conflict, which is likely to push up inflation uncertainty as noted earlier.

3.10 Independent medium-term forecasts on earnings increases published by HM Treasury (HMT) in February 2026, ranged from 2.4% to 3.9% pa over the period from 2027 to 2030, with an average of 3.0% pa (around 1% pa above the Bank of England long-term CPI target). Again, these forecasts are from before the beginning of the conflict in the Middle East in February 2026. HMT’s most recent comparison reports from March 2026 onwards no longer include medium-term forecasts.

3.11 Based on the above, we would suggest a real earnings growth assumption in the range of 0.75% to 1.0% pa above CPI would be a reasonable estimate over the 5-year period from 2027 to 2032.

Outcome of considerations

3.12 Given that the projection period we are looking at is only 5 years, we place more relevance on the short to medium term outlook when setting this assumption.

3.13 Despite the uncertainty introduced by the conflict in the Middle East, we consider it reasonable to use the averages of the forecasts over the medium term as described in 3.9 without any explicit allowance for the higher pay increases reported over the last 10 years.

3.14 We have assumed DWP will want to continue to exclude the additional premium of 0.5% pa, which applied to the fixed revaluation rate prior to 2017 (as referred to in paragraph 2.6). Our view is that excluding the premium remains appropriate based on the reasons set out in the March 2017 response, and that nothing has changed that would require a reintroduction of the premium compared to previously.

3.15 Taking the above into account, we would suggest an overall assumption in the range of 3.0% to 3.5% pa over the 5-year period from 2027 to 2032. As noted earlier, DWP may wish to consider consulting on a range, rather than a specific rate as was done for the previous review, and determining the final rate at a later stage before the rate is finalised ahead of April 2027. However, if DWP would prefer to consult on a single figure, then we consider the midpoint of this range of 3.25% (identical to the current rate) would be a reasonable proposed rate.

4. Compliance and limitations

4.1 This report has been prepared by the Government Actuary’s Department (GAD) at the request of the Department for Work and Pensions (DWP) to inform policy considerations regarding the fixed rate of revaluation of Guaranteed Minimum Pension (GMP). It is published to promote transparency and understanding of the analysis and methodology used in this review.

4.2 No liability is accepted for any loss or damage arising from reliance on the contents of this report by any party. For further information or personal guidance, individuals should consult appropriate professional or advisory services.

4.3 This work has been carried out in accordance with the relevant Technical Actuarial Standard: TAS 100 issued by the Financial Reporting Council (FRC). The FRC sets standards for actuarial work in the UK.