Opt out of SERPS/S2P?

armour

dunstonh wrote: »

No. Contracting out has no impact on the basic state pension. It only reduces the SERPS or State second pension element. With the new single state pension proposals, current information suggests you will possibly be one of the gainers from having been contracted out.
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Hi Dunstonh,
I was under the impression that people who had been contracted out of SERPS/S2P for a length of time such that they didn't have 35 yrs worth of SERPS/S2P contributions (to go along with their normal contributions) would not recieve the full amount of the new pension.

Are you saying that the plan is to reward those who have contracted out?

In my own case I have 35 yrs of NI contributions but only 10 yrs of SERPS/S2P. Around 18 yrs worth of contracted out payments went to a FS scheme & 7 yrs worth went into a personal pension.
Will I be in line for the full state pension as well as FS scheme plus personal scheme?
BTW I will be 51 next birthday.

Paul_Herring

There will be a deduction from the £144 per year contracted out. Guesses from the other thread put it at about 15%, so you get around £3.49 per contracted out year instead of the £4.11 for contracted in.

Note that it is a guess however - the white paper doesn't actually say.

dunstonh

I was under the impression that people who had been contracted out of SERPS/S2P for a length of time such that they didn't have 35 yrs worth of SERPS/S2P contributions (to go along with their normal contributions) would not recieve the full amount of the new pension.

They will see a reduction against their single state pension based on the amount of benefit they would have got had they been contracted in. It will be based on on pre 2017 implementation

(Number of pre-implementation qualifying years x £144 / 35) - rebate derived amount.

That brings you down from the £144. However, you can start building entitlement under post implementation rules.

Also, remember that this thread is about contracted out money purchase schemes. The people on this thread will have former protected rights in their pension which will give them a pension income. This will differ to final salary schemes.

they will then be able to build up entitlement on post 2017 implementation rules. These could more than compensate for the deduction. However, until we see great text and clarification on the calculations, there is still some vagueness to this.

jamesd

armour wrote: »

Are you saying that the plan is to reward those who have contracted out?

No,[STRIKE] more like severely punish.
[/STRIKE]
Under current rules you accumulate about 1/49th of your additional state pension for each year working. So you need to make up that 1/49th with the contracted out investments. the contracted out rebates were also calculated for that full lifetime of earning.

There's an example in the proposal that seems to show that instead of 1/49th of the additional part, it might be 1/35th of the whole pension, not just the additional part.

To see what that does to the cost of having contracted out, assume that the basic state pension is £110 before contracting out and the flat rate pension welfare payment is £144.

Expected cost: 1/49th of (£144 - £110) = £0.69 a week
Using 35ths: 1/35th of (£144 - £110) = £0.97 a week, 141%
Using 35ths of whole: 1/35 * (144) = £4.11 a week, 596%

So potentially six times the cost you were told about when you contracted out. And no normal investment is going to be able to pay out six times what it was expected to pay.

At a stroke it could say that everyone who contracted out is a big loser from the change - and 80% of people have been contracted out at some point.

Added later: but the example seems to show some protection from the old rules being used in an alternative calculation to reduce the number of years needed to get to £144 total state pension, so I'm largely no longer concerned about this, though I do wonder how anyone could be better off after having contracted out using the new rules calculation.

Prof_Ligate

jamesd wrote: »

No, more like severely punish.

Under current rules you accumulate about 1/49th of your additional state pension for each year working. So you need to make up that 1/49th with the contracted out investments. the contracted out rebates were also calculated for that full lifetime of earning.

There's an example in the proposal that seems to show that instead of 1/49th of the additional part, it might be 1/35th of the whole pension, not just the additional part.

To see what that does to the cost of having contracted out, assume that the basic state pension is £110 before contracting out and the flat rate pension welfare payment is £144.

Expected cost: 1/49th of (£144 - £110) = £0.69 a week
Using 35ths: 1/35th of (£144 - £110) = £0.97 a week, 141%
Using 35ths of whole: 1/35 * (144) = £4.11 a week, 596%

So potentially six times the cost you were told about when you contracted out. And no normal investment is going to be able to pay out six times what it was expected to pay.

At a stroke it could say that everyone who contracted out is a big loser from the change - and 80% of people have been contracted out at some point.

I have found paperwork from 2007 for a contracted out with profits pension which now seems to be with Royal London Plus. I'm pretty sure I only ever paid the opening £50 and all the rest is contracted out bits. The total guaranteed fund is £3k and it suggests that by the time I retire the fund will buy me a yearly income of £150 (wont be spending that all at once!).

Do I have an option to transfer it somewhere (maybe into a workplace pension when that starts up in 2014) or does it have to sit there gathering dust til I retire? Oh and I was self employed for 4 years so would I have been contracted back in then or only when everyone was contracted back in in 2012 (by which time I was employed again)?

Thanks!

jamesd

You can transfer it to any other personal pension. There's no difference now between contracted out (protected rights) money and other pension pot money.

The yearly income of £150 needs to be compared to the state pension you gave up to get that independent income. That would depend on how much you were earning because the additional state pension you gave up to get the rebates depends on both how much you were earning and your age at the time you were contracted out.

Johnn64

confused to say the least .......... Thanks Donstonh and everyone else for trying to help with this minefield, I still just cant make any sense of it.
I just need to know if I will have benefitted from contracting out, if I will get more than the proposed £144 weekly pension. You think you are doing the right thing by trying to provide for a better future then the Government throw a spanner in the works !

Paul_Herring

I just need to know if I will have benefitted from contracting out, if I will get more than the proposed £144 weekly pension.

If you've contracted out, you'll likely get less than £144 (unless you have 35 years contracted in, including those after 2012.)

Whether you benefit or not depends on whether your contracted out funds can get you a pension greater than the difference between your state pension and £144. (And since you can take that pension from the age 55, rather than wait until state retirement age, the answer might be yes.)

Linton

Johnn64 wrote: »

confused to say the least .......... Thanks Donstonh and everyone else for trying to help with this minefield, I still just cant make any sense of it.
I just need to know if I will have benefitted from contracting out, if I will get more than the proposed £144 weekly pension. You think you are doing the right thing by trying to provide for a better future then the Government throw a spanner in the works !

You will get less than the £144 but you will of course benefit by the income from your contracted out pension pot. I would hope the end result would not be very different whether you contracted in or out. However the government hasnt yet stated how the deduction will be calculated.

Johnn64

Linton wrote: »

You will get less than the £144 but you will of course benefit by the income from your contracted out pension pot. I would hope the end result would not be very different whether you contracted in or out. However the government hasnt yet stated how the deduction will be calculated.

My contracted out scheme is/was with scottish widows. Is that paid to me directly from them as a seperate element at retirement age ? I get statements each year indicating the forecast.
I think my confusion comes from the fact that my current LGPS is classed as "contracted out" and this scheme started in 2004. I originally contracted out in 1987