MSE News: Flat-rate state pension could be £155 a week

Saucepot

What is to occur with the difference between contracting in or out of SERPS?

Are those contracted in now worse off, losing any benefit of doing so?
Are those contracted out now going to get their private pensions raided for the additional contributions the state has made?

If the contracted out are going to get raided will it be for the value of the contracted out fund, or the sum total of contributions?

More detail is required and I suspect some will have reason for feeling ripped off

bilbo51

Saucepot wrote: »

What is to occur with the difference between contracting in or out of SERPS?

Are those contracted in now worse off, losing any benefit of doing so?
Are those contracted out now going to get their private pensions raided for the additional contributions the state has made?

If the contracted out are going to get raided will it be for the value of the contracted out fund, or the sum total of contributions?

More detail is required and I suspect some will have reason for feeling ripped off

It's not very clear is it?

Example situation:

Say hypothetically :whistle: that I'm due to retire 2016 so fall into the new scheme (assuming they're true to their word, I know!)

Current state pension forecast shows £179 per week made up of £97.65 Basic Pension and 79.33 Payable Additional Pension and £2.08 Graduated Pension.

Having contracted out for a period of time, I have a (currently) Protected Rights with profits policy due to mature at £73,500 in 2016. There's a 10% Guaranteed Annuity Rate on this, so this should produce £7,350 per annum - right? = £141 per week.

What's the government going to do to me?

patman99

Simple isn't a concept your average Tory can grasp. If we were to simplify Pensions, the surely the easiest method would be -
£6 per year worked (up to 30 years)+ bonuses from contracted-out policies and private pension policies.

SnowMan

Saucepot wrote: »

What is to occur with the difference between contracting in or out of SERPS?

Are those contracted in now worse off, losing any benefit of doing so?
Are those contracted out now going to get their private pensions raided for the additional contributions the state has made?

If the contracted out are going to get raided will it be for the value of the contracted out fund, or the sum total of contributions?

More detail is required and I suspect some will have reason for feeling ripped off

It doesn't cover it in the green paper but my guess is that individuals will almost certainly keep any gains or retain any losses from contracting-out of SERPS into a personal pension. They would need to do that partly for fairness reasons and partly for practical reasons, otherwise they have to find out what everyone is receiving from their private pensions.

That is they will deduct the SERPS/S2P you would have earned had you not contracted-out and not the value of your contracted-out personal pension you actually receive.

Let's say I reach SPA the day after the changes come in and had I not contracted out of SERPS/S2P I would have got a SERPS/S2P pension of £30pa. However instead I contract-out into a personal pension (pay no additional contributions into that from my own pocket) and receive a pension of £40pa. Then my state pension would be £140 pa (the flat rate state pension) less £30pa = £110 pa. On top of that I would have my personal pension of £40 giving me a £150 pa total pension. So I keep the £10 pa gain through contracting out of SERPS.

Old_Slaphead

SnowMan wrote: »

Let's say had I not contracted out of SERPS/S2P I would have got a SERPS/S2P pension of £30pa. However instead I contract-out into a personal pension (pay no additional contributions into that from my own pocket) and receive a pension of £40pa. Then my state pension would be £140 pa (the flat rate state pension) less £30pa = £110 pa. On top of that I would have my personal pension of £40 giving me a £150 pa total pension. So I keep the £10 pa gain through contracting out of SERPS.

So you and your employer have been paying around 5% of your salary to fund S2P and the government are going to (in your example) keep 75% of it?

Surely the add-ons, SERPS/S2P/SGP etc, have been paid for therefore each person should keep their accrued entitlement - in addition to any minimum state pension.

Judwin

My solution would be to deduct the relevant percentage of the time that you spent opted out from the SERPS bit of the new pension.

So, if you start work at 18, and retire at 68, you could have payed NI for 50 years, building up your SERPS/S2P entitlement of £40 p.w on top of the basic £100 p/w state pension.

However, if like me you opted out from age 21 to age 43 then you've only been opted in for 28 of those 50 years, so you only recieve 28/50 ths of the £40 - about £22.40. You get to keep all of whatever your protected rights pot from the 22 years opted out results in.

I thnk the starting and ending ages need to be much broader than the current 30 years NI for the state pension. If the SERPS top up bit also only needed 30 years to qualify for a full £140, then someone like me would get 28/30 ths of it. And I think it's likely the pension age will increase to 70 before I get there, so I'd then get the full 30/30ths.

Saucepot

It all sounds terribly complicated. If the solution is to deduct the state pension of contracted out people, then it isn’t a universal pension is it?

You still pay NI whether contracted in or out, and those contracted out may have a full record of working and paying NI and end up with a lower state pension than those that have taken a career break. Is that fair?

That is the point isn’t it? To address an unfairness for those that raise children and don’t work, not add an unfairness to those that do.

If the governments does nothing and just says £155 is the universal pension then I win because for 15 years I’ve been contracted out and I have a private pot of those contributions which I get to keep. Someone contracted in loses a pot of cash they could otherwise have got and is no better off for having done so.

If the government takes that pot of contributions off me it is raiding my pension pot. If it takes the value of the Pot then that may be higher or lower than the contributions in it so the government is either accepting my losses or stealing my profits.

If it takes the contributions then it is asking me to realise an investment that is not mature. I don’t retire for 20 years. That may leave me with a profit but it may leave me with a loss. Is that a loss I have to take from my own private contribution fund, or does the government let me off it?

I’m not seeing this as thought out.
Better to scrap means testing of pension benefits, have a higher basic state pension not based on contribution and leave the second pension as a choice of in or out.

Thicko2

Will thiis be the final death knell for final salary schemes?

The 3.6% NI discount for contracted out schemes will have to be mean reduced benefits for members?

oh and another 1.4% tax rise on the stretched middle?

gadgetmind

The reason we're all having to guess is because the green paper was long on words but short on equations. Equations are good, with equations you can make spreadsheets and play "what if".

Old_Slaphead

Thicko2 wrote: »

Will thiis be the final death knell for final salary schemes?

In a word - yes. Realistically though, FS schemes were never designed to fund 25+ years retirement.

oh and another 1.4% tax rise on the stretched middle?

A significant proportion of the 'stretched middle' are already paying this anyway.