New state pension rules and 'contracting out'

pandora205

I have just had a conversation with the Future Pension Centre about my contributions towards my state pension. Currently I have 42 years so I would be entitled to £113,10 and I plan to work for another 5 years (to my SPA).

I knew the flat rate pension was rising to £144 but I hadn't realised that my LGPS contributions (and previously TPS) would count as 'contracted out'. I've paid full superannuation plus NI contributions the whole time I've been working. This will mean a deduction (of an amount not yet known due to the changes) so it is not likely that I would be better off. I hadn't realised that was the case.

They couldn't give any more information at this stage other than I couldn't be worse off when the new ruling comes into place.

I'm just posting this in case others were not aware of this.

JB9302

Same here , 42 yrs and £113.10 + £3.50 GRB , told me they may be able to give more precise figures after Sept when the tools are available to work out what to deduct ( there speak not mine ) .

NotSkint

I knew that I was contracted out of SERPS whilst I was in my old DB schemes. What I didn't know was that I am likely to have a deduction from the basic £113 (30yrs NI contributions to date) for being in a DB, which is above and beyond what I was expecting and I have no idea of how large that deduction is likely to be, or how it is to be calculated. I know that overall I should be a winner as I will be able to add more years under the new pension arrangements, but I haven't been able to find anything online that details how the deduction is to be calculated on the old (foundation?) amount.

coyrls

NotSkint wrote: »

I knew that I was contracted out of SERPS whilst I was in my old DB schemes. What I didn't know was that I am likely to have a deduction from the basic £113 (30yrs NI contributions to date) for being in a DB, which is above and beyond what I was expecting and I have no idea of how large that deduction is likely to be, or how it is to be calculated. I know that overall I should be a winner as I will be able to add more years under the new pension arrangements, but I haven't been able to find anything online that details how the deduction is to be calculated on the old (foundation?) amount.

I don't think there's a deduction on the basic pension when calculating the foundation amount. There will be a deduction on the new pension before it is compared to the foundation amount to determine which is higher.

Your_Hero

Majority of DB schemes are contracted-out schemes. You were far better off in DB schemes.

Prior to the Single Tier pension, you would have lost out on the SERPS/S2P entirely due to contracting-out. You are now in a situation where you are basically getting the same as before since your state pension will be £113 p/w which is roughly what a basic state pension is today. You are not worse off.

You also have more years to accrue further benefits towards the single tier pension.

atush

You were not paying the full NI rate, but the lower contracted out rate so you haven't suffered.

AFAIK, you have been contracted back in since 2012 like everyone? So will have those 2 years, plus 5 years going forwards to pay full nics (incl s2p for 2 years and 3 years after the new pension comes in).

So should get something on top of basic.

Your_Hero

You are right atush but that was for DC schemes only in 2012 (along with protected rights). Contracting-out for DB schemes will be abolished in 2016. So OP would still have a few years to build it up.

xylophone

I knew the flat rate pension was rising to £144 but I hadn't realised that my LGPS contributions (and previously TPS) would count as 'contracted out'. I

You didn't read your scheme booklets? Example https://shareweb.kent.gov.uk/Documents/council-and-democracy/pensions/LGPS/guide-effect-state-pension-LGPS.pdf

https://www.teacherspensions.co.uk/members/the-scheme/about-the-scheme.aspx

See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

pandora205

I didn't see anything on state pension on our Pensions website (and still can't find one). It's all related to the finer points of LGPS, which I think I've just about got my head around. So no.....

PeacefulWaters

While I was naffed off to realise I wouldn't qualify for the new IDS maximum my previous expectation was the current basic state pension.

I'm no worse off with the change, I'm just not better off. It's (on the face of it) quite fair.

NotSkint

Thanks coyrls, I don't think the contracted out bit is straight forward, though maybe I might get a bit added to the £113 basic rather than taken away as I previously thought. Looking on the web I found the following

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20. Where a person is contracted-out of the additional state pension (see below), their entitlement to additional pension for the period during which they are contracted-out is reduced or removed to recognise the pension derived from contributions made to an occupational or personal pension scheme instead of towards the state scheme.

21. For earnings in the tax years from 1978/79 to 1996/97, a member of a contracted-out occupational pension scheme accrued additional state pension in the same way as someone who was not contracted-out, but the rate payable was reduced by a contracted-out deduction.

22. For earnings in the tax years from 1997/98 to 2001/02, a member of a contracted-out occupational pension scheme did not accrue additional state pension in respect of earnings in contracted-out employment.

23. For earnings in any tax year starting from 2002/03, a member of a contracted-out occupational pension scheme earning between £4,264 and £27,800 (in 2005/06 terms) in a tax year will get a State Second Pension top-up in respect of that year. The top-up reflects the more generous additional state pension provided by State Second Pension and is paid as part of the state pension.

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This looks to me that although contracted out, it is still possible that extra pension above the basic could be forthcoming?