Contracted Out Penalty

xylophone

I just scanned the document and will read in depth later but am I right in thinking that when the £144 flat rate pension comes in then any contracted out periods will be deducted from the £144?

If you reach SPA after 2016 see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf for explanation.

jamesd

For the Sep 1985 to Sep 1993 period you're interested in there will be a contracted out deduction because this is in the two time range when there are those deductions: 1978/79 to 1996/97.

For contracting out from 1997/98 onwards there is no deduction as such in he "current scheme valuation" calculation because the money was never even added to the Additional State Pension entitlement in the first place. So those with contracted out periods only in this time range can rely on their State Pension Statement for current rules entitlement calculations.

Then there's the new single tier rules calculation. That uses the same contracted out deduction until 1996/97 and then a deduction due to a calculation called the Rebate Derived Amount that's supposed to reduce the £144 by about what someone would have got if they had been contracted in instead of contracted out.

A person gets the foundation state pension amount that produces the highest payment from the two calculations, old rules and new rules.

If a person reaches state pension age after the new rules they can continue to pay in for more than 35 years after the new system is introduced to continue to increase the flat rate pension by £4.11 a week for each full year until it reaches £144 a week, or until they reach state pension age. Pro-rated for partial years. Not before the new system is introduced, unless they have less than 30 years total contracted in or out, when getting up to 30 years to get a full basic state pension is likely to be cheaper than under the new system. People in this group who were contracted out for a long time can be some of the winners: they get the benefits from having contracted out and also get to pay in for more than 35 years under the new rules to get up to £144.

Dimey wrote: »

The HMRC/NI have told a friend of mine that if you were contracted out for any period, no matter how short during 6/4/1978 to 5/4/1997 you will not receive any graduated pension or Serps for the whole 19 year period. ... If so, should he get a refund of his 11 years of grad/Serp contributions that HMRC accepted while knowing they were not required?

No refund because the original summary that he gets no graduated pension or SERPS for the whole period is wrong. He'll get it for the time he was contracted in, just not for the time contracted out.

Dimey

Thanks James.

It makes sense that my friend will only be penalised for the period he was contracted out ie. 8 years not the whole 19 years.

I'm still a bit mystified about the £144 flat rate. I'm going to read the info xylophone supplied later but for myself - I've paid full NI, graduated, serps and Additional for 42 years. I contracted out for 3 short bursts - 1987-88; 1996-97 and 1998-2009. I've retired now but can't draw my state pension till circa 2019 (female born 1954).

I can't get my head around only receiving £144 pension when friends in similar circumstances get £230 ish now.

I already feel hard done by not being able to get my pension at age 60 as I'd planned for my whole working life!:)

Archergirl

This may have been covered I got a bit bogged down reading.
I contracted out for some time and then went back in, but when I was 60 I started geting a pension from the ins company that my 'contracted out' money was paid into. I have to wait until I'm 63 to get my state pension.

jem16

Dimey wrote: »

I already feel hard done by not being able to get my pension at age 60 as I'd planned for my whole working life!:)

The change from age 60 has been known about since 1995 so surely you would have planned for that 18 years ago?

Dimey

jem16 wrote: »

The change from age 60 has been known about since 1995 so surely you would have planned for that 18 years ago?

Yes I was kind of generalising. Though I have to admit I didn't pick up on it till about 10 years ago. I'd got myself sorted pension wise and just went heads down saving. Never used MSE in those days!

Dimey

Archergirl wrote: »

This may have been covered I got a bit bogged down reading.
I contracted out for some time and then went back in, but when I was 60 I started geting a pension from the ins company that my 'contracted out' money was paid into. I have to wait until I'm 63 to get my state pension.

Yes I expect to get little bits of pension from the 3 companies I contracted out for. They should come through in 5 years.

Archergirl

Well this will be in addition to your state pension, I am getting it 3 yrs before my state pension so I am happy.

xylophone

He'll get it for the time he was contracted in, just not for the time contracted out.

From what the OP said it looks as though the pre 97 ASP figure on her friend's pension statement is less than his COD.

See post 4 above.

Dimey

xylophone wrote: »

From what the OP said it looks as though the pre 97 ASP figure on her friend's pension statement is less than his COD.

See post 4 above.

Its certainly looking that way.

He's querying back to HMRC Pensions Div.

It seems they are deducting 19yrs of COD when he only actually contracted out for 8 years.

Now there could be huge misunderstanding here so we'll wait to get response from HMRC and will come back when we are confident with the data to post.