Help me understand pensions please?

bryanb

SteL wrote: »

How would one be contracted out? Would this happen if I were to stop contributing to NI?

It happened to people in company schemes a few years back.(Reduced NICs)

If you could stop NICs those years would not count.

SteL

gadgetmind wrote: »

Try playing with this calculator.

<link removed>

There are advanced options you can play with and don't forget state pension. In fact, seeing the numbers here will make you realise what a bargain state pensions are!

I had looked at that calculator after I asked the question.

Do you know if the projected income is- per annum after tax?

gadgetmind

SteL wrote: »

Do you know if the projected income is- per annum after tax?

Per annum before tax.

You can reduce tax by taking the 25% PCLS and investing in ISAs etc. but only if you can keep your hands off it and just use it for income.

SteL

Thanks for your responses BryanB but I am struggling to understand who or how someone would have their state pension affected. Would it have to have been a voluntary decision to contract yourself out of the state pension?

The main reason I ask about this particular subject is not for my own pension but rather my fathers, he has turned 60 and has recently started withdrawing from his RAF pension he is concerned that when he begins receiving his state pension it may be affected?

bryanb

SteL wrote: »

Thanks for your responses BryanB but I am struggling to understand who or how someone would have their state pension affected. Would it have to have been a voluntary decision to contract yourself out of the state pension?

As I understand it, Private pension schemes could guarantee to pay a certain amount in return for their members paying less NICs. The deduction from State pension in these cases are usually covered by Graduated pension conts (another defunct scheme) or SERPS
Only real way to find out someones entitlement is a pension forecast, but not sure this shows anything other than basic entitlement.

gadgetmind

However, note that this only affects State Second Pension and not basic pension. Basically, because you pay less NI to the state, you get less state second pension but more from your non-state pensions.

Pension statements (they removed the term "forecast"!) show basic state pension and an estimate of your S2P/SERPs.

xylophone

The main reason I ask about this particular subject is not for my own pension but rather my fathers, he has turned 60 and has recently started withdrawing from his RAF pension he is concerned that when he begins receiving his state pension it may be affected?

http://www.proud2serve.net/leaving-the-service/710-your-state-pension-explained
https://forums.moneysavingexpert.com/discussion/4472613
//docs.google.com/viewer?a=v&q=cache:xieeu_oN5m0J:https://www.parliament.uk/briefing-papers/SN02674.pdf+&hl=en&gl=uk&pid=bl&srcid=ADGEESjrI-Ob8kII6GoGLbz2ga6o2NRlHlfg2hXcCHxNaxugYmodB_13V6jda-pCzpNajx-IDv9nSa_hiHDGxnVeZuiNPhs7MwXQdo3_UuVzTHdJcUrnk7_PbJmUFgMHtCPVB49q_tQs&sig=AHIEtbQmF_fUlMTPFILd2gTN8hmdpuKzrw

CPI not RPI is now used for ASP increases.

Linton

SteL wrote: »

Thanks for your responses BryanB but I am struggling to understand who or how someone would have their state pension affected. Would it have to have been a voluntary decision to contract yourself out of the state pension?

The main reason I ask about this particular subject is not for my own pension but rather my fathers, he has turned 60 and has recently started withdrawing from his RAF pension he is concerned that when he begins receiving his state pension it may be affected?

It is complicated.....

There are at the moment two state pensions:

1) Basic State Pension, currently around £107 IIRC

This will not be affected in any way by your father's pension. However some final salary schemes (I dont know whether this applies to the RAF scheme) do provide an extra income for people retiring before the State Pension Age which is removed when that starts.

2) Additional State Pension

Known in the past as SERPS or S2P. This is financed by an addition to National Insurance. You could avoid paying this extra (or pay less) and lose ASP under 2 circumstances:

a) You chose to "contract out", in which case equivalent money was paid into a private pension which should pay at least the what you would have received from the ASP. This option was stopped last year

b) You were a member of a Final Salary scheme where it was assumed that the ASP you would have received was being incorporated into the FS deal.




The government is now proposing that in 2017 ASP will disappear, being merged into a higher Basic Pension. The idea being to take the poorest pensioners out of some benefits. People with an ASP entitlement wont overall lose out, but those without one do better getting the full benefit of the increased basic pension.

Contracted out years complicate this considerably. Broadly these will result in a lower Basic State Pension, the difference being compensated for by the money already in the private pension or nominally included in the FS pension. Again no-one should lose out overall, but some people will do better than others.

I am sure that those who do less well will see themselves being penalised, though overall taking into account the private pensions and benefits that's not really the case.

SteL

Thanks again everyone.

Going back to my own situation- I have spoken to our FD and he doesn't want to contribute employer NI saving. So there is currently only the £133.88 p/m going into my pension pot by way of salary sacrifice.

Seeing as I don't have the added benefit of the employer NI saving going in there, am I any better off having gone down the salary sacrafice route rather than paying whatever I need to out of my net pay and getting tax relief to reach the same £133.88 each month?

GhIFA

You'll be saving the NI that you would have paid on the salary you have sacrificed - which will either be added to the pension contribution, or giving you a slight increase in your "take home" pay. If you had the net contribution deducted from your net salary then you wouldn't have this NI saving. Granted, it may not be a lot of money, but it's a saving nonetheless that benefits you.