Contracted Out Penalty

xylophone

Its certainly looking that way.

He's querying back to HMRC Pensions Div.

It is certainly worth checking that the pre 97 ASP and COD are correct - if you read https://forums.moneysavingexpert.com/discussion/4532605 from post 21 onwards you will see that in the case of poster howy22 a mistake had indeed been made.

But if your friend's deferred pension did increase in deferment by fixed rate (7% in his case) rather than full rate, then his statement is likely to be correct. Note Snowman's comments at 29.

I hope you'll come back with the outcome of your query.

Dimey

Yes I'll certainly come back with the outcome. Though it may take a while for HMRC Pensions to respond
Thanks all for now.

jamesd

Dimey wrote: »

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

The state pension has three parts:

1. Basic State Pension. Fixed amount for each year up to 30 under current rules.
2. Additional State Pension. Amount depends on income level while paying in and on the years when it was done, SERPS adding more for high earners, S2P that replaced SERPS early in the 2000s paying less for average and high earners and more for lower earners. Contracting out eliminates this for the years when contracted out. Doesn't stop increasing after 30 years.
3. Graduated Retirement Pension. Predated SERPS, not usually mentioned when discussing state pensions for those aged 55 or younger but you may well have some. Also income related.

So how much someone will get from the state pensions under current rules calculations depends on both number of years and income during those years, as well as whether they were contracted out or not.

Someone never contracted out who always worked on a low income might get perhaps £190 a week. A high earner might get more like £250 a week if they were high earning for most of their working life. If they then deferred taking the state pensions I've seen someone on more than £300 a week because they go up by 10.4% for each year not taken under current rules.

Those numbers explain why I generally summarise this change as the "flat rate cut to pensions for employees": everyone who is an employee for most of their life under the new system is going to be worse off than under the current one. But those like you who are relatively near to retiring will get transitional protection.

Dimey wrote: »

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).

You might well get more than £144. If you're entitled to more than that under current rules, you will. A State Pension Statement will give you a good starting point. It'll be right for most of the 199802009 contracting out period, will say too much for1987-88 and 1996-97 but not enough to make a huge difference - no more than perhaps £5-10 a week too high.