MSE News: Budget 2012: Single state pension plan confirmed

gadgetmind

SnowMan wrote: »

Jenny is contracted-in throughout so that's of no relevance

Jenny is relevant because she has already accrued more than the £144. The White Paper makes it clear that she can't then accrue more.

Your wording that I quoted was -

"In some cases that person has already accrued the £144 partly through basic state pension and partly through having contracted out of SERPS but will then have an opportunity to accrue some extra state pension on top of this."

I'm pretty sure this is wrong. Once a foundation sum at £144 or above has been established, that's your lot.

marathonic

So, with hindsight, would I be correct in saying that the article below was incorrect for those of us in the early thirties or younger.

It looks like, even with NO state pension entitlement in 2017 (impossible or, at least, unlikely), you'd have 35 years left to retirement if you were 32 and could, therefore, build up a full state pension in addition to your contracted out rebates.

Of course, as the advice in the article below was correct at the time, I'd imagine that the number of people contracted out in the 'below 35' category is probably relatively low.

http://www.telegraph.co.uk/finance/personalfinance/pensions/2845727/Contract-back-in-urge-pension-groups.html

zagfles

gadgetmind wrote: »

Jenny is relevant because she has already accrued more than the £144. The White Paper makes it clear that she can't then accrue more.

Because she was always contracted in. So Jenny isn't relevant to be the point below see highlight...

Your wording that I quoted was -

"In some cases that person has already accrued the £144 partly through basic state pension and partly through having contracted out of SERPS but will then have an opportunity to accrue some extra state pension on top of this."

I'm pretty sure this is wrong. Once a foundation sum at £144 or above has been established, that's your lot.

No it's not, because he was referring to someone who has part of the £144 through being contracted out, ie not as part of the state pension.

The foundation amount doesn't include any private/company pension which comes from the contracted out rebates. So someone who has contracted out will have the opportunity to earn more pension than someone who was always contracted in.

SnowMan

gadgetmind wrote: »

Jenny is relevant because she has already accrued more than the £144. The White Paper makes it clear that she can't then accrue more.

Your wording that I quoted was -

"In some cases that person has already accrued the £144 partly through basic state pension and partly through having contracted out of SERPS but will then have an opportunity to accrue some extra state pension on top of this."

I'm pretty sure this is wrong. Once a foundation sum at £144 or above has been established, that's your lot.

The whole point is that someone with a long period (say 35 years) of solely contracted-out service will have a Foundation Amount below the £144, their Foundation Amount could typically be £107 because they have no additional state pension currently, both parts of the guarantee reduce down to what could be £107.

That person will also have benefited through contracting out through their benefits from their contracted out arrangement be it an appropriate personal pension or a company scheme, for argument let's say that this contracted out element is £37. So their benefits from the state together with from having contracted out of SERPS is £144. So

that person has already accrued the £144 partly through basic state pension and partly through having contracted out of SERPS

And that person will be able to accrue further state pension because their foundation amount is below £144 and so that person

will then have an opportunity to accrue some extra state pension on top of this

I gave you a link to an example with figures in my earlier post to show how this all works.


The Jenny example remains totally irrelevant because Jenny's foundation amount is above £144 and the reason it is above £144 is because she is contracted in throughout. There are no quirks in the methodology for those who have been contracted-in throughout.

zagfles

marathonic wrote: »

So, with hindsight, would I be correct in saying that the article below was incorrect for those of us in the early thirties or younger.

It looks like, even with NO state pension entitlement in 2017 (impossible or, at least, unlikely), you'd have 35 years left to retirement if you were 32 and could, therefore, build up a full state pension in addition to your contracted out rebates.

Of course, as the advice in the article below was correct at the time, I'd imagine that the number of people contracted out in the 'below 35' category is probably relatively low.

http://www.telegraph.co.uk/finance/personalfinance/pensions/2845727/Contract-back-in-urge-pension-groups.html

That article is ancient (2003), and academic now as its talking about personal money purchase schemes and you can't contract out of these schemes now (only salary related occupational schemes).

But yes in hindsight it's probably wrong in cases you suggest, as if people had contracted out, they'd have their personal pension from the rebate plus the opportunity to get a full single tier state pension if they work for (maybe) 45 years total. Whereas those who stayed contracted in would get no further opportunity to add to their state pension if they already have 35 years, they will still pay the same NI but it will be money down the drain (at least as far as the state pension goes).

I really think they're going to come unstuck over this, when people such as the IFS analyse it properly. This the real unfairness, not all the petty "it's not fair the rules change and I don't benefit because I retired at 60", and "public sector workers in generous final salary schemes now have to pay the same higher NI rates as everyone else" etc.

SnowMan

zagfles wrote: »

Because she was always contracted in. So Jenny isn't relevant to be the point below see highlight...

No it's not, because he was referring to someone who has part of the £144 through being contracted out, ie not as part of the state pension.

The foundation amount doesn't include any private/company pension which comes from the contracted out rebates. So someone who has contracted out will have the opportunity to earn more pension than someone who was always contracted in.

Thanks. I was beginning to doubt myself for a moment. But that is exactly what i was trying to say.

Back to the carrot cake making......

gadgetmind

zagfles wrote: »

No it's not, because he was referring to someone who has part of the £144 through being contracted out, ie not as part of the state pension.

But we don't know how that contracted out sum will be taken into account as the "rebate derived amount" calculation is currently under wraps. How can we say that part of that £144 is part of being contracted out? The contracted our NI went into our Protected Rights pots and is not jolly hard to track. (OK, so some people contracted out into final salary pensions, but these are a closed book to a simple bear such as myself.)

What we do know is that someone who qualifies for £144 or above in 2017 won't be able to add to this, or is there an escape clause for some?

Please note that we're discussing state pension. Income from Protected Rights pots is jolly hard to predict, but these can no more be added to now that can any SP accrual above £144 post 2017.

wakeupalarm

zagfles wrote: »

But yes in hindsight it's probably wrong in cases you suggest, as if people had contracted out, they'd have their personal pension from the rebate plus the opportunity to get a full single tier state pension if they work for (maybe) 45 years total. Whereas those who stayed contracted in would get no further opportunity to add to their state pension if they already have 35 years, they will still pay the same NI but it will be money down the drain (at least as far as the state pension goes).

I really think they're going to come unstuck over this, when people such as the IFS analyse it properly. This the real unfairness, not all the petty "it's not fair the rules change and I don't benefit because I retired at 60", and "public sector workers in generous final salary schemes now have to pay the same higher NI rates as everyone else" etc.

Bingo!

This is the real injustice of these changes, those who were contracted in are prevented from adding to their pensions, while those contracted out can end up with the full £144 PLUS their contracted out pension having paid less NI and being able to access it at age 55.

gadgetmind

wakeupalarm wrote: »

those contracted out can end up with the full £144 PLUS their contracted out pension

And those who chose to remain contracted in will have much larger amounts of S2P that will in many cases take them well beyond the £144.

Yes, contracting out made a lot of sense for most people, but that was well known back when millions of people chose to do it. Others chose to put their faith in the British Government maintaining the rules of the state pension Ponzi scheme as it was at the time.

Some who opted out may have chosen to invest their Protected Rights pots in hot areas such as Japanese property, dot com companies, and then banks. As a result, they won't exactly have done well from contracting out.

Such is the nature of free choice.

SnowMan

wakeupalarm wrote: »

Bingo!

This is the real injustice of these changes, those who were contracted in are prevented from adding to their pensions, while those contracted out can end up with the full £144 PLUS their contracted out pension having paid less NI and being able to access it at age 55.

It is an injustice for sure, and an un-necessary injustice.

I think I do reasonably well out of this as I've only got one year of contracted-in employment and the rest is either contracted-out employment or self-employment so in theory I can accrue a full £144 state pension plus the benefits from most of my past contracting-out if I get enough qualifying years post 2017.

I still think it is ridiculously unfair and I can't believe the proposals can be enacted in this form.

If the government introduced a scheme that people in even numbered houses paid a 4% lower tax rate than those in odd numbered houses for 9 years (so 16% rather than 20%) then there would be an outcry.

Replace even and odd houses by contracted-out and contracted in, then for those with a lot of past credits and perhaps 10 years off SPA in 2017 that is really what is happening.