Contracting Out and New State Pension

tony4147

I contracted out for a period of about 14 years, I'm now contracted back in since last year.

Will those 14 years I was contracted out be included in the 35 years I need to claim 100% of the new state pension?

Linton

tony4147 wrote: »

I contracted out for a period of about 14 years, I'm now contracted back in since last year.

Will those 14 years I was contracted out be included in the 35 years I need to claim 100% of the new state pension?

The 35 year requirement does not depend on whether you are contracted in or out. Where the contracted out makes a difference is that your £144/week will be reduced by a factor depending on when and for how long you were contracted out. Depending on the precise dates you were contracted out you may have benefited by money being placed in a separate pension and/or by reduced NI charges.

If your contracted out resulted in a separate pension one would expect that the deduction would be less than or equal to the income from the pension. The valuation of your rights at 2017 is the larger of your rights under the old scheme and those under the new scheme so you should not lose any rights you have accrued so far.

tony4147

So for instance if I were to get a total of 49 years working including the 14 years I've contracted out, would I get the £144/wk and the contracted out portion that I have in a private pension?

dunstonh

How many years will you have after 2017 under the new state pension?

Linton

tony4147 wrote: »

So for instance if I were to get a total of 49 years working including the 14 years I've contracted out, would I get the £144/wk and the contracted out portion that I have in a private pension?

The 35 years and contract-in/out calculations are completely separate. So in your example under the new scheme £144 would start as the basis since you satisfied the 35 year requirement. This would then be reduced by a contracted-out deduction based on your contracted-out status during the whole of the 49 years. You would also get the private pension contracted-out portion which may bring the total to more than £144.

The purpose of the deduction is to ensure as far as possible that you get no advantages or disadvantages purely by being contracted-out as opposed to contracted-in.

tony4147

I just checked, I was contracted out 22 years (not 14), I have 17 years until I'm 67.

Linton

One addition - the calculation is carried out at 2017. If the result then is less than £144 your NI years count until you have reached £144. So in your example if one only had 35 years NI at 2017 there is a good chance that one would be able to earn back the Pension lost by the contracted-out calculation.

SnowMan

Trying to piece this together from the information you have given.

You will have 49 years Qualifying Years (QYs) up to your SPA?

And 32 up to now (April 2012?) and potentially 17 in the future?

And you've been contracted-out for 22 of them?

So possibly 37 QYs up to 2017 and 12 QYs afterwards?

Are there some years where you have been contracted into SERPS/S2P. What additional pension have you earned from these? Should be on a State Pension Statement although we would need to factor in further accrual to 2017?

Would need to know what additional state pension you had earned to date, but for example let's say it is £10pw.

And let's say that asa very wild guess the deduction for contracting-out used in the new scheme calculation is £22pw.

Then the position might be as set out in this spreadsheet. Obviously you would have your contracted-out benefits not provided by the State on top.

Obviously that's completely wrong as we don't know the amount of your additional state pension and can only wild guess at the deduction to make for contracting-out, and I'm not sure of those QYs you are quoting, but it is illustrative of one possible scenario.

tony4147

I will be 50 this year and have worked since I was 16, I was contracted out for 22 years. So if I work until I'm 67 then I will have worked for a total of 51 years, I believe that the state pension only counts from the age of 19 (I might be wrong) so that will be 67-19=48 years of which 22 years have been contracted out.
My contracted out pension fund today has a plan value of £33K, so what portion of the new state pension or how much of the £144/wk is made up from the SERPS?

SnowMan

tony4147 wrote: »

I will be 50 this year and have worked since I was 16, I was contracted out for 22 years. So if I work until I'm 67 then I will have worked for a total of 51 years, I believe that the state pension only counts from the age of 19 (I might be wrong) so that will be 67-19=48 years of which 22 years have been contracted out.
My contracted out pension fund today has a plan value of £33K, so what with the new state pension what how much of the £144/wk is made up from the SERPS?

To talk figures you would need to get an up to date State Pension Forecast. That will tell you how many Qualifying Years you have to date. You can then ring up the DWP and they should be able to tell you which tax years you DON'T have as qualifying years and you can check if those missing years are missing for a valid reason.

The State Pension Statement will also tell you how much additional state pension you have accrued for periods where you were contracted-into SERPS/S2P.

The State Pension Forecast may also show the Contracted Out Deduction which represents the Additional State Pension foregone through contracting-out before 1997 and forms part of the Rebate Derived Amount shown in the earlier spreadsheet.

You are missing youth credits in your thinking (credits for age 16, 17 and 18) but the starting point in identifying Qualifying Years is to get a State Pensions Statement to find out what years you have

Linton

tony4147 wrote: »

I will be 50 this year and have worked since I was 16, I was contracted out for 22 years. So if I work until I'm 67 then I will have worked for a total of 51 years, I believe that the state pension only counts from the age of 19 (I might be wrong) so that will be 67-19=48 years of which 22 years have been contracted out.
My contracted out pension fund today has a plan value of £33K, so what with the new state pension what how much of the £144/wk is made up from the SERPS?

In 2017 the following calculation is carried out.

Old scheme

---

OS=£107*(NI/30) + contracted-in

For the contracted-in payment get a statement from the SP website.

New Scheme

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NS=£144*(NI/35) - Contracted-outDeduction

Contracted-outDeduction is a complex calculation if you were contracted-out after 1997. Its roughly the extra you would have got had you been contracted-in.

The NI factors have a maximum value of 1.

Then the maximum of OS and NS is taken as the "Foundation Amount". For each NI year after 2017 the FA is increased by £144/35 until it reaches £144.

So to answer your question if you were contracted in throughout your working life and had > 35 years in 2017, then any SERPS up to £37 (£144-£107) would be taken up by the £144. Any above that you would get as extra State Pension.

If you were contracted-out then things get more complicated as it is dependent on the COD. My brain isnt functioning clearly enough to give a precise answer. You should be able to work it out from the equations given above!