Rebate Derived Amount for Single Tier Pension transition

SeekTruth

A number of people, myself included, have mentioned the Rebate Derived Amount (RDA) in this forum. It forms part of the calculation at transition to the proposed Single Tier Pension.

However, it appears that the general opinion is that the formula for calculating the RDA has not yet been announced. I suggest this is wrong, the details have been announced in the draft Pensions Bill at Schedule 1 paragraph 5 (on page where page header states 'Draft Pensions Bill 35'), where it states:

5 In paragraph 4(2) and (3) references to an “amount to reflect contracting out under the old system” are to an amount equal to any difference between—
(a)the amount of any additional pension included in the Category A retirement pension calculated for the purposes of Step 1 of the calculation in paragraph 2, and
(b)the amount of any additional pension that would have been included if the following were omitted—
(i)in section 45(2)(b) of the Contributions and Benefits Act, the words “but before the first appointed year”,
(ii)section 45(2)(c) and (d) of that Act, and
(iii)sections 46 and 48A of the Pension Schemes Act 1993.

So, now, all we have to do is find someone that can understand this 'legislation-speak' and convert it into something understandable by us mere mortals.

To give someone a start, I believe that 'Contributions and Benefits Act' refers to http://www.legislation.gov.uk/ukpga/1992/4/section/45/enacted as amended by http://www.legislation.gov.uk/ukpga/2000/19/part/II/chapter/I/2000-11-01 and some other legislation that I have yet to identify.

Does anyone volunteer to explain what all this means?

SnowMan

For mere mortals it is covered in para 43 of this DWP technical note.

See also this post

http://forums.moneysavingexpert.com/showpost.php?p=58779565&postcount=23

To clarify that post which was made before the technical note was published, the post 97 bit is actually the SERPS/S2P that would have notionally accrued if an individual had been contracted-in post 97.


There was a drafting error in the bill (which a couple of pensions consultancies pointed out see para 3 of this submission and para 5 of this submission for example) which meant that the rebate derived amount as set out in the draft bill wasn't quite what they intended, but I'm sure that will be corrected if it hasn't already.

SeekTruth

Thank you Snowman.

I had read para 43 of the technical note several times. It refers to

their assumed additional State Pension, which is assumed to match the benefit accrued as a result of contracting out, for years between 1997 and 2017.

I still think that there are a number of possible interpretations of this.

Your post from 21/1/13 refers to

some sort of notional COD

which I don't recall seeing before and which seems to be correct but not entirely specific.

I also had not previously seen either of the submissions that you refer to. The first of these I find very helpful and, if I understand, states that the calculation for 1997 onwards should use the SERPS calculation, even for years after 2002. This makes sense to me, but doesn't seem to quite match your understanding of

the post 97 bit is actually the SERPS/S2P that would have notionally accrued if an individual had been contracted-in post 97.

As I understand it, since 2002 the Additional Pension earned by a contracted out employee has equalled the S2P earned by a contracted in employee minus the assumed benefit of contracting out, which is the SERPS calculation.

So, if we changed your statement to read

the post 97 bit is actually the additional SERPS/S2P that would have notionally accrued if an individual had been contracted-in post 97.

then I would agree, and it also seems to be one possible interpretation of para 43 of the technical note.

taktikback

I'm pretty sure from the technical note that what happens is that the notional gain from what would have been earned in SERPS is offset against the COD which cancels out. The only purpose of the RDA is to stop any benefit being derived from the post 97 contracted out periods...

stinktankcynic

Not sure if this helps. I got a forecast recently that broke down state basic pension, additonal pension etc. This came to around £20 for me. The basic pension was around £79_£80 based on 20 something years. Total pension around £100. I think it mentioned it could be less if you were contracted out before / or in 1997, which I was for part of the year/around a year etc. I was c/o between 1996 and 2001. I think if I work another 10 years, I will get the £144 or equivalent.
I'm assuming the years contracted out after 97 have been included in the £20 figure which would be higher otherwise, or am I wrong?

SeekTruth

stinktankcynic wrote: »

Not sure if this helps. I got a forecast recently that broke down state basic pension, additonal pension etc. This came to around £20 for me. The basic pension was around £79_£80 based on 20 something years. Total pension around £100. I think it mentioned it could be less if you were contracted out before / or in 1997, which I was for part of the year/around a year etc. I was c/o between 1996 and 2001. I think if I work another 10 years, I will get the £144 or equivalent.
I'm assuming the years contracted out after 97 have been included in the £20 figure which would be higher otherwise, or am I wrong?

Assuming the Single Tier Pension is introduced in April 2016 then a comparison will be performed as at that date between your entitlement under the current scheme and your entitlement under the Single Tier Scheme.

Your entitlement under the current scheme, I would guess, will be a few pounds more than the current figure of about £100. You will presumably have another 3 years of entitlement, perhaps some more Additional Pension but the Contracted Out Deduction (not actually specified in recent pension forecasts) will have increased.

Your entitlement under the Single Tier Scheme will be about 23/35 of £144 minus the Rebate Derived Amount, which will be based on your contracted out service (1996 - 2001).

The higher of these two calculations will, in your case, be that based on the current scheme (because 23/35 of £144 is about £95 and a deduction has to be made from this).

So, your initial amount under the Single Tier will be a little over £100, say £105 at a guess. As you say, another 10 years or so of entitlement, after 2016, will increase your entitlement to the maximum under the new scheme.