State pension changes - deduction for being contracted out

traineepensioner

Hi,

Has anyone figured out the amount of deduction to be taken from the single tier pension for each year contracted out? (to reflect lower National Insurance contributions paid during time spent contracted-out).
I've had a look at http://www.dwp.gov.uk/docs/single-tier-pension.pdf and I'm no wiser
I worked for the same company for 38 years and most of my NI contributions were contracted out. I've now retired on my occupational pension but won't (currently) be eligible for my state pension until 2024 (age 66).

I suppose I could "sign on" for the next 12 years to get my NI stamp

Any thoughts?

StevieJ

I don't think we know yet what the deduction rate will be but this in interesting on Yahoo. I assumed that the deduction would cover back to at least 1978 when contracting out was introduced. Looking at that it would seem that someone who retired early, say age 50 in 2004 (with 30 years NI payments) would only be deducted 17 years whereas someone who retired in 2017 at 50 (in exactly the same circumstances) would be hit for a 30 year deduction, both with no contracted in years added back. Doesn't look correct does it ?

Anyone both contracted in and contracted out of S2P or Serps between 1987 and 2017 will have a one-off deduction to their entitlement based on the amount of time they were contracted out. An addition will then be made for the periods they were contracted in up to 2017.

http://uk.finance.yahoo.com/news/state-pension-changes-the-winners-and-the-losers-165829557.html

SnowMan

traineepensioner wrote: »

Hi,

Has anyone figured out the amount of deduction to be taken from the single tier pension for each year contracted out? (to reflect lower National Insurance contributions paid during time spent contracted-out).
I've had a look at http://www.dwp.gov.uk/docs/single-tier-pension.pdf and I'm no wiser
I worked for the same company for 38 years and most of my NI contributions were contracted out. I've now retired on my occupational pension but won't (currently) be eligible for my state pension until 2024 (age 66).

I suppose I could "sign on" for the next 12 years to get my NI stamp

Any thoughts?

There is a guarantee that applies to protect your past contributions called the Foundation Amount

a) Your National Insurance record as at implementation is valued under the single-tier rules, which take into account your qualifying years so if you have 35 years, the amount is £144, and then a deduction to reflect lower National Insurance contributions paid during your time spent contracted-out (which they call the 'rebate derived amount') is made.

b) A check is performed to see if you would get a higher valuation based on your entitlement to basic state pension and additional state pension accrued on the current system.

The calculation of the 'rebate derived amount' is not specified anywhere in the white paper so the following is complete speculation. It could for example be calculated on a retrospective basis as the sum of the reduction in employer and employee national insurance savings you have had (+ possibly some incentive payments that were made) together with interest and converted to a pension equivalent on some deferred annuity basis.

At a complete guess I would say that the 'rebate derived amount' will bring a) above down to below the basic state pension amount of £107 (unless you were on a very low income).

For someone who was contracted-out throughout you would expect state pension to be pretty much just basic state pension with no SERPS so about £107. So b) would be £107.

So the greater of a) and b) would be £107 the current basic state pension. That's my very very rough guess.

Of course you do effectively get some additional state benefit through your company pension scheme albeit your company scheme took on responsibility for paying it and so it isn't strictly state pension. So you are probably getting more than £144 from the state effectively, although part of that forms part of your company pension so you may not realise you are getting this.

A quirk in the proposal is that you will be able to increase your £107 Foundation Amount to £144 if you have additional qualifying years post 2017 or by paying voluntary national insurance to buy these qualifying years.

SnowMan

StevieJ wrote: »

I don't think we know yet what the deduction rate will be but this in interesting on Yahoo. I assumed that the deduction would cover back to at least 1978 when contracting out was introduced. Looking at that it would seem that someone who retired early, say age 50 in 2004 (with 30 years NI payments) would only be deducted 17 years whereas someone who retired in 2017 at 50 (in exactly the same circumstances) would be hit for a 30 year deduction, both with no contracted in years added back. Doesn't look correct does it ?


http://uk.finance.yahoo.com/news/state-pension-changes-the-winners-and-the-losers-165829557.html

Sounds like nonsense I agree should go back to 78.

The treatment of contracted-out occupational scheme membership periods and contracted-out periods through an appropriate personal pension are probably treated similarly. So the 1987 is probably something to do with when contracted out through APPs took place.