contracted out deductions

wallyboyes · 5 October 2005 at 9:01PM

Does anyone know anything about C O Ds my wife had a pension with Thos Cook and was persueded to hand it over to Commercial Union (Now Norwich Union) when she reached 60 the state pension was charged £24.00 per week COD but the annuity is only £56.00 per month HELP

CIS · 5 October 2005 at 9:28PM

see here, this will explan it

http://www.thepensionservice.gov.uk/pdf/np46/np46apr05.pdf

if you need anymore help, just ask

Note; COD is only applied against pre 2002 Additional Pension, it is not applied to post 2002 State Second Pension (although it is reduced for contracting out, the calculation directly accounts for it, its not shown as a seperate counter deduction like COD)

wallyboyes · 18 November 2005 at 8:54PM

Yhanks for the information but it does not explain why my wife is not getting the same amount as she is having deducted or vice verse she is not being deducted the same amount that she is receiving. Can you advise if there is anyone to contact please

Milarky · 18 November 2005 at 9:06PM

As I understand it the COD is an amount purely determined by the earnings for the period your wife was contracted-out [just as the SERPS figure is for someone who was 'contracted-in']. She has given up a pre-determined amount of additional pension from the state in return for the 'equivalent' benefits through the contracted-out pension scheme. But the COD takes no account of this. If the contracted-out benefits are not 'defined' benefits, and only built up from the growth in the value of 'rebate', she may well receive less pension from the employer scheme than the 'value' placed on the COD in advance. [I could be wrong but that's my understanding, certainly]

CIS · 18 November 2005 at 10:57PM

Contracted Out deduction is calculated at a different rate to Additional Pension unless the scheme was preserved at a section 148 scheme which revalues it at the same rate as AP.

The State Pension Forecast shows the total Additional Pension earned between 1978 and 2002 on your wifes forecast. This includes all earnings for any periods in which she was contracted out (except 97-02,which had different rules).

The Additional Pension figure is then countered by the COD which is calculated for any periods in which she was not paying in to the state scheme, and therefore accrues no liability from the state.

The general principal was that the COD scheme would beworth more than the state AP, therefore rates where set depending on how profitable the COD scheme would be to the customer.

When this figure was applied against the AP, it was expected that it could only ever be more than the AP accrued during the same, therefore you never lost on the AP you gave up, as the scheme value would always be more than the AP.

Unfortunately the schemes have quite often under performed and dropped below the rate at which the given up AP would have accrued, thus leading to COD wiping out the states AP liability.

The actual revaluation rate of the COD scheme is set by the scheme provider when it is registered with the IR. This rate is used by the government and their isnt really any facility for them to change it if the scheme is underperforming.

Its for this reason that a lot of schemes are telling people to contracted back in to the state scheme.

contracted out deductions

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free