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Totally confused by Contracted Out Deduction Letter

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  • xylophonexylophone Forumite
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    will I still get my £112 state pension do you think -

    First of all, you get the basic state pension to which your NI contributions have entitled you - if you have at least thirty years then you will receive a full BSP of £110.15 (2013-14).

    Each year this will increase by 2.5% or CPI or average earnings, whichever is the greatest. This is the so called "triple lock".

    At your age, you are likely to have been in employment before 1976 so will probably be entitled to some graduated pension on top of the BSP. http://www.needanadviser.com/html/article.php/zcid/354/type/article/finance/State_Graduated_Retirement_Pension_Scheme

    The SERPS scheme was introduced in 1978 - employers/employees paid additional NI contributions depending on salary to build up an additional state pension on top of the Basic State Pension.

    However, in return for guaranteeing a pension that was at least as great as SERP, the employer could pay a lower rate of employer/employee NI.
    This was the Guaranteed Minimum Pension. (The GMP scheme ended in 1997 with the introduction of a scheme reference test.)

    The SERPS scheme was changed to SP2 in 2002.

    At State Pension Age, the National Insurance Contributions Office calculates the additional pension you would have earned between 6/4/78 and 5/4/88 and 6/4/88 and 5/4/97 as if you had not been contracted out. (Notional ASP)

    From this they deduct the actual GMP you have built up through your s32/occupational pension scheme between 1978 and 1997 - this is the COD - what is left is the amount of additional state pension you accrued in that period.

    It is not impossible for this to be a negative figure - this typically occurs where an employee has a deferred pension with GMP where the GMP has been revalued in deferment by so called "fixed rate" rather than 'full rate" (S148 ) - see here http://www.barnett-waddingham.co.uk/news/2012/07/what-is-a-gmp/

    The above is important because of the rules relating to how GMPs in payment are increased.


    The employer is not obliged to increase the GMP accrued between 6/4/78 and 5/4/88 - this is the responsibility of the government and paid by the government as ASP with the state pension- any such increase used to be by September RPI but is now CPI.

    This figure remains fixed as far as the employer is concerned.

    The employer has only to increase 88-97 GMP by CPI (or RPI if the scheme rules oblige it) up to 3% with the balance paid by the government up to CPI see here http://www.opalliance.org.uk/increases.htm which is typical of public service schemes but for RPI read CPI. Remember that public service schemes always used "full rate" in deferment so that notional ASP and "real" GMP were roughly the same.


    BUT if the notional ASP calculated by NICO is less than the actual GMP, ( COD greater than notional ASP) then there can be no increase in 88-97 Additional State pension until one has caught up with the other.
  • xylophonexylophone Forumite
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    It is not impossible for this to be a negative figure - this typically occurs where an employee has a deferred pension with GMP where the GMP has been revalued in deferment by so called "fixed rate" rather than 'full rate" (S148 ) - see here http://www.barnett-waddingham.co.uk/...what-is-a-gmp/

    If you are interested, you might find this worth a look (Read as plain HTML)
    https://docs.google.com/viewer?a=v&q=cache:rZgVz5VexKsJ:www.pensions-ombudsman.org.uk/determinations/docs/2008/aug/s00105.doc+&hl=en&gl=uk&pid=bl&srcid=ADGEESgiKcsmnxgDw7ol1014C0ioGmCk0WHXZqn7KRLG-TD_cJvuIeaQP3a_LNpfhusNNw1jOH0OZrBPV!!!!cL6bOac8HtVlNZrgZLTThcdyKyCzbLII5BEc56JvWk6cRCuzCR9LTt5&sig=AHIEtbRmfTyQW8eGaDqvSdmRqQ0g-yYPaQ
  • SeekTruthSeekTruth Forumite
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    Geoffo_M wrote: »
    Thank you so much, your understanding of this is far greater than mine will ever be. Don't know if this helps you to understand my circumstances but £94 of that £131 comes from a section 32 buy-out plan I bought in Nov 1987 (would you believe just £10k then is going to buy me an annual pension of just over £9k now, I'm amazed & very pleased with that). The other £37 comes from being in my last employer's scheme from 1987 to 2008. Just to clarify though, will I still get my £112 state pension do you think - I'm concerned they might be going to try and take the £131 figure off the £112 to leave me with nothing in state pension? Again, a massive thanks to SeekTruth & JohnB here who understands far more than I ever will - just wish I could join you more in your understanding.

    Yes you will get the full basic state pension (£110.15 for the 2013/14 tax year).
    You may get a little extra.
    Some time in the future (very difficult to estimate when) you will start to get rather more extra on top of the basic. Suggest you regard this as a nice bonus when it happens rather than basing any plans on it.
  • JohnB47JohnB47 Forumite
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    Geoffo_M wrote: »
    Thank you so much, your understanding of this is far greater than mine will ever be. Don't know if this helps you to understand my circumstances but £94 of that £131 comes from a section 32 buy-out plan I bought in Nov 1987 (would you believe just £10k then is going to buy me an annual pension of just over £9k now, I'm amazed & very pleased with that). The other £37 comes from being in my last employer's scheme from 1987 to 2008. Just to clarify though, will I still get my £112 state pension do you think - I'm concerned they might be going to try and take the £131 figure off the £112 to leave me with nothing in state pension? Again, a massive thanks to SeekTruth & JohnB here who understands far more than I ever will - just wish I could join you more in your understanding.

    Thank you but I take no credit for any knowledge here. I only ask questions and the experts answer. 'Pensions' is a big and complicated subject and has become more so because of the impending transition between old and new.
  • xylophone wrote: »
    If you are interested, you might find this worth a look (Read as plain HTML)

    Thanks for this. I'm in a similar position in that my COD is currently £101.56 and ASP £53.56, so there will be no "increase on my pre 1988 GMP paid with my state pension," that my RBS bank pension advice letter suggests will be the case.

    Since the difference has only decreased by £0.58 during the last year, it seems unlikely I will live long enough to wipe this out! I can understand why it's right that there is a COD since I was contracted out, but it doesn't seem fair that I should lose out on future pension increases (pre 1988 GMP accounts for 66% of my bank pension).
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  • howy22howy22 Forumite
    15 posts
    This has been a most informative thread. However can anyone explain why I have a GMP of £98.82/wk, a COD from H M Revenue & Customs (NI Contributions) of £98.82/wk, yet The Pension Service uses a COD of £133.56 to calculate my State Pension. Endless discussions with the relevant departments seams to create more and more confusion.
  • xylophonexylophone Forumite
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    Are you just about to receive your first payment of state pension?
    Can you upload your statement with personal information removed?
  • howy22howy22 Forumite
    15 posts
    Hello xylophone,

    Is it possible for me to upload a pdf file with the relevant details or do I need to retype the info?
  • xylophonexylophone Forumite
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    Is it possible for me to upload a pdf file with the relevant details or do I need to retype the info?

    It is possible to copy in an image ( I notice that other posters occasionally do this with forms etc) although I have to say that I have had difficulty with doing this.
  • howy22howy22 Forumite
    15 posts
    I think it will be quicker to cut and paste.

    I received my first state pension payment in Aug 2012 (attaining 65)
    At this point the Pension Service gave a statement as follows:-

    [FONT=&quot]How Your benefit is made up From AUG 12[/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot]Basic Pension £107.45[/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot]Additional Pension based on earnings from 6/4/1978[/FONT]
    [FONT=&quot]to 5/4/1997 of £98.83 less Contracted-Out Deduction[/FONT]
    [FONT=&quot](COD) of £132.43 you earned from an employer's or[/FONT]
    [FONT=&quot]personal pension scheme from 6/4/1978 to 5/4/1997
    [/FONT]
    [FONT=&quot] [/FONT][FONT=&quot] NIL
    [/FONT]
    [FONT=&quot]Additional Pension payable based on earnings[/FONT]
    [FONT=&quot]From 6/4/1997 to 5/4/2002 [/FONT][FONT=&quot][FONT=&quot] £0.48[/FONT] [/FONT]
    [FONT=&quot]From 6/4/2002 also based on caring/incapacity £2.09[/FONT]
    [FONT=&quot]Shared Additional Pension NIL[/FONT]
    [FONT=&quot]Extra - Basic Pension NIL[/FONT]
    [FONT=&quot] - Additional Pension NIL[/FONT]
    [FONT=&quot] - Shared Additional Pension NIL[/FONT]
    [FONT=&quot]Uprating of Contracted-Out Deduction Increments NIL[/FONT]
    [FONT=&quot]Graduated Pension £5.00[/FONT]
    [FONT=&quot]Invalidity Addition/ Incapacity Age Addition NIL[/FONT]
    [FONT=&quot]Age Addition NIL[/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot]Money for other people NIL[/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot] The amount each week is £115.02[/FONT]

    [FONT=&quot][/FONT]
    [FONT=&quot]At the same time I received a statement from HM Revenue
    [/FONT]
    [FONT=&quot](NI Contributions) with a COD figure of £132.43/wk[/FONT]

    [FONT=&quot][/FONT]
    [FONT=&quot]This year I have received further statements as follows:-[/FONT]

    [FONT=&quot][/FONT]


    [FONT=&quot] [/FONT][FONT=&quot]From APRIL 2013[/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot]HOW.YOUR BENEFIT IS MADE UP[/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot]basic State Pension £110.15[/FONT]
    [FONT=&quot]Pre 97 additional State Pension £101.00[/FONT]
    [FONT=&quot]less Contracted-Out Deduct ion (COD) of £133.56[/FONT]
    [FONT=&quot] Total payable £0.00[/FONT]
    [FONT=&quot]Post 97 additional State Pension £2.63[/FONT]
    [FONT=&quot]Graduated Retirement Benefit £5.11[/FONT]
    [FONT=&quot] [/FONT]
    [FONT=&quot] The amount each week is £117.89[/FONT]




    The HM Revenue statement for 2013 now shows a

    COD of £98.82.


    I've requested a private pension breakdown from my provider
    which gives a figure of £98.82/wk for GMP which HM Revenue

    tell me is effectively COD in my case.


    I understand that AP and COD are recalculated each year but don't understand the large change to the HMR figure, why different COD's are being used by different agencies and why the HMR figure, which reconciles with my pension provider, isn't used by the Pension Service.


    Hope you can throw some light on the matter.
    [FONT=&quot][/FONT]
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