More Contracted-out confusion

savesum

I took early release from BT after 31 years service in 1996 aged 49. I then worked as an independent contractor on and off for 10 years. At aged 60 I was divorced and since my wife never worked in a job my private pension was cut in half.

Last month I reached 65 and have started my state pension. The information from the Pension Service says I have a total weekly Contracted-out Deduction of £82.67.

I cannot say I really understand this but am happy with what I am getting now - c'est la vie.

However my query here is the statement at the bottom which says :-

The amount quoted does not take into account any pension sharing on divorce or dissolution of a civil partnership.

I wonder if this would make a difference to my pension if I followed it up. Obviously it would be good if my Deduction was reduced - not so good if increased :eek: Maybe make no difference at all - Any ideas?

jamesd

The contracted out deduction is because the BT scheme was a contracted out pension so it was getting the money from your contracting out of SERPS then S2P. It was used to increase the value of the pension paid buy the BT scheme. That BT scheme had to provide certain guarantees about levels of pension that the money would provide as part of the deal for getting the money. Because you were contracted out your Additional State Pension is reduced for the years when you weren't paying in any extra money above that needed for the basic state pension. Contracting out doesn't affect the BSP.

With a pension sharing order it's expected that the additional state pension due on SERPS contributions before 1997 will be split with the spouse. The contracted out deduction shown in your letter has not been reduced to take that split into account. This means that the deduction is too high if the contracted out pension was shared. If you were working for BT all of the time before 1997 this will probably make no difference because I expect it to instead show up in the reduced payments you get from that pension. Else you'll probably get a little more money than the deduction implies.

Best to phone up the Pension Service and ask about how the specifics apply to you.

savesum

Thank you James for your explanation - I may be too thick to ever understand CODs
I'm also a coward and a bit too scared to ring the Pension Service in case they say there will be a further reduction and my ex will benefit instead. So I'm inclined not to follow it up any more.