FRSP - Not everyone gets £144

gadgetmind

coastline wrote: »

I could work again of course but I'd rather just pay a few years NI stamps if its worth it ??

The advantage of being self employed is that you choose how much you work. As long as you pay your class 2, the DWP seem happy to award you another qualifying year.

Whether to do this now or post 2017, and whether it might affect your financial position in other ways, is down to you to work out, I'm afraid.

SnowMan

coastline wrote: »

I took redundancy and early retirement a few years ago so the only way I can boost my NI is pay for the two years needed.??
I could work again of course but I'd rather just pay a few years NI stamps if its worth it ??
I've had a look at some old pension statements but I can't see any breakdown with figures...just my pension options and value.
Have I got the 80p idea correct in any way or am I making a mistake...thanks for your reply.

On the surface 80 p doesn't sound that unreasonable.

The average additional pension (above the basic state pension) implied by the new system is £37 (=144 - 107). If we make the sweeping assumption the new system is cost neutral then in effect that is saying that the average additional pension is about £37 for someone contracted-in throughout. And so the average contracted-out deduction is also about £37 for someone contracted-out throughout. And if we assume that accrues over 45 years, it isn't too far off 80 pence. Lots of massive assumptions there of course.

However it very much depends on circumstances. My own accurately calculated contracted-out deduction (which we know forms part of the rebate derived amount) works out at about £2.25 per week, per year of contracting-out, so almost 3 times the 80p pw figure. And my situation is some way from being an extreme scenario.

When you allow for the changing SERPS accrual rates over time, and the different revaluation rates for different periods, and variations between high and low earners you get sufficient large variations in the contracted-out deduction per year that using a single figure such as 80p is likely to give spurious results.

In particular you could conclude the new basis calculation used for the foundation amount will be higher when the accurate calculation will show that the old basis calculation is actually higher.


The issue is that without knowing your own contracted-out deduction you can't be sure in situations like yours whether the old or new system calculation will form the basis for the foundation amount.

If you've got over 30 years qualifying years and it is the old system basis that gives a materially higher calculation than the new system calculation then buying extra years before 2017 is likely to be money down the drain.

Steve Webb has already indicated that around 2017 people will be told their foundation amount and then given the opportunity to buy years back to about 2006/2007. So it seems obvious to wait until then when accurate figures are available before deciding to buy extra qualifying years.

There is some logic for those who won't reach 30 qualifying years buying extra years now, but buying years now to take you ABOVE 30 before 2017 will often (but not always) be a mistake.

jamesd

SnowMan wrote: »

There is some logic for those who won't reach 30 qualifying years buying extra years now, but buying years now to take you ABOVE 30 before 2017 will often (but not always) be a mistake.

Extra years now will probably be cheaper because they only today buy the basic sate pension level. So for those who are way short of reaching 35 years and who can't possibly get there without buying years they could be a good deal. Should also allow for possible future increases in state pension age that will increase the number of years available after teh change, as well.

stinktankcynic

Hi,
If I am on 21 years payments out of 30 at the end of this year, so we have 4 years to go until 2017, then i have 25 at transition. I have around 4 and a half years early contracting out. Is my foundation level likely to be 25/30 * basic state pension + 17 years of sp2 less deduction for contracting out?

How much a year is sp2 worth a week typically?

Is the contracted out deduction the same for all?

I'm wondering how many more years I will
Need to work to get the £144 full amount.

Thanks stc

stinktankcynic

stinktankcynic wrote: »

Hi,
If I am on 21 years payments out of 30 at the end of this year, so we have 4 years to go until 2017, then i have 25 at transition. I have around 4 and a half years early contracting out. Is my foundation level likely to be 25/30 * basic state pension + 17 years of sp2 less deduction for contracting out?

How much a year is sp2 worth a week typically?

Is the contracted out deduction the same for all?

I'm wondering how many more years I will
Need to work to get the £144 full amount.

Thanks stc

Also.... Why is there a deduction for contracting out, surely you should just not get any sp2 whilst contracted out?

Linton

stinktankcynic wrote: »

Also.... Why is there a deduction for contracting out, surely you should just not get any sp2 whilst contracted out?

The situation for S2P/SERPS prior to 1997 was the figure known as the "Entitlement" was calculated on the basis of being contracted-in full time. There was then a deduction applied for the years you were contracted out and the result is the amount you are paid. The deduction being covered by the income from the private pension that received the contracted-out monies.

Move forward to 2017. The "Entitlement" is incorporated into the £144. For contracted-out years this must be reduced by some amount to allow for the money that you will be getting from the contracted-out private pension. This of course will continue after 2017.

From things said on this thread the "entitlement" method of calculating your S2P paid changed in 1997 and only contracted-in years appeared in the "entitlement". So on this basis there should not be a deduction for S2P from 1997. However I have no personal knowledge of this time period and so my understanding may be wrong.

stinktankcynic

Linton wrote: »

The situation for S2P/SERPS prior to 1997 was the figure known as the "Entitlement" was calculated on the basis of being contracted-in full time. There was then a deduction applied for the years you were contracted out and the result is the amount you are paid. The deduction being covered by the income from the private pension that received the contracted-out monies.

Move forward to 2017. The "Entitlement" is incorporated into the £144. For contracted-out years this must be reduced by some amount to allow for the money that you will be getting from the contracted-out private pension. This of course will continue after 2017.

From things said on this thread the "entitlement" method of calculating your S2P paid changed in 1997 and only contracted-in years appeared in the "entitlement". So on this basis there should not be a deduction for S2P from 1997. However I have no personal knowledge of this time period and so my understanding may be wrong.

I was contracted out between 1996 and 2001.

StevieJ

I will be happy with £107 (well the equivalent) when it come to my turn