Single Tier & Contracted out contributions

tony4147

I don’t really understand what the affect if at all the new single tier state pension will have on my existing contracted out contributions. I would appreciate if someone could explain in layman terms if it does affect it and how.
For a number of years I contracted out into a Standard Life with profits pension, at the moment it has a plan value of around £38k, I don’t know if this pension is any different to a normal personal pension, it is called a SL Personal Pension.
I have 17 years until SPA (67), the pension has a selected retirement date of 65 from when it was first set up.
Regarding the SL pension that has the “contracted out” contributions -
1. Will I be able to take this pension before I’m 67?
2. From any time upwards of 55?
3. Will I be able to take a 25% lump sum?

Single tier state pension -
1. If I can take the above pension will I still get the full State Pension equivalent of £144, (I will have enough years in).

Thanks in advance

molerat

1,2,3. Currently yes to all 3 but obviously the return will be lower the earlier you crystalise it.
1, Yes but possibly subject to a "contracted out deduction" which I don't think as yet has not been 100% explained.

Have a read of this thread https://forums.moneysavingexpert.com/discussion/4509161

Linton

There are two different issues here, one set related to your SL pension being "with profits" and the other related to contracting out.

SL Pension Q1: Yes
SL Pension Q2: Yes
SL Pension Q3: Yes

but because it is a WP pension it may be disadvantageous to do so. Also there may be guarantees associated with the pension that would not apply if you took it other than under the standard terms. You would have to discuss this with SL.

Single tier pension Q1:

When the single tier scheme starts the initial amount of weekly pension you have earned up til that date based on your number of NI years will be calculated as the maximum of what you would have got under the old scheme and what you get under the new scheme. This figure is then reduced by the Contracted Out Deduction as that part of your pension was passed over to SL.

The net effect is that you would fail to reach £144 by 35 NI years. This is one of the few cases where working more than 35 NI years helps - you can continue accruing pension until the amount you have earned is £144.

Note that "£144" is an example figure - it will have been increased by inflation when the time comes.

tony4147

Linton wrote: »

There are two different issues here, one set related to your SL pension being "with profits" and the other related to contracting out.

SL Pension Q1: Yes
SL Pension Q2: Yes
SL Pension Q3: Yes

but because it is a WP pension it may be disadvantageous to do so. Also there may be guarantees associated with the pension that would not apply if you took it other than under the standard terms. You would have to discuss this with SL.

Single tier pension Q1:

When the single tier scheme starts the initial amount of weekly pension you have earned up til that date based on your number of NI years will be calculated as the maximum of what you would have got under the old scheme and what you get under the new scheme. This figure is then reduced by the Contracted Out Deduction as that part of your pension was passed over to SL.

The net effect is that you would fail to reach £144 by 35 NI years. This is one of the few cases where working more than 35 NI years helps - you can continue accruing pension until the amount you have earned is £144.

Note that "£144" is an example figure - it will have been increased by inflation when the time comes.

I understand SL Q1,2 & 3

I have checked with the state pension service and I will have 35 years NI by 2016.
So, I'm 50, if I continue working another 15 years and pay NI, am I correct that I will get the full £144 (or whatever value it is then) AND all of my SL pension on top?

Linton

tony4147 wrote: »

I understand SL Q1,2 & 3

I have checked with the state pension service and I will have 35 years NI by 2016.
So, I'm 50, if I continue working another 15 years and pay NI, am I correct that I will get the full £144 (or whatever value it is then) AND all of my SL pension on top?

Its 2014 now so you will be under the single tier scheme for 13 years. Each of those years you will accrue £144/35. If 13 years is sufficient to bring the earned pension to £144, yes you will get the benefits of both full SP and the SL pension.

tony4147

Linton wrote: »

Its 2014 now so you will be under the single tier scheme for 13 years. Each of those years you will accrue £144/35. If 13 years is sufficient to bring the earned pension to £144, yes you will get the benefits of both full SP and the SL pension.

Is there a way of working it out what they will deduct for the SL pension?
I was "contracted out" from April 1990

The 13 years will give me -
144/35= £4.11x13 =£53.48/wk

According to SL their valuation at SPA I will get a pension in the region of £3k/yr from the contracted out contributions if I don't take a lump sum.

Linton

I dont know how COD will be calculated but seeing as SL must pay you at least (roughly) what you would have got under SSP/ASP, and 53.48X52 =2780 it looks like the 13 year payment and COD should be fairly close.

tony4147

Linton wrote: »

I dont know how COD will be calculated but seeing as SL must pay you at least (roughly) what you would have got under SSP/ASP, and 53.48X52 =2780 it looks like the 13 year payment and COD should be fairly close.

So what your saying is hopefully I will get in the region of the full state pension AND my SL if I work until SPA

Linton

tony4147 wrote: »

So what your saying is hopefully I will get in the region of the full state pension AND my SL if I work until SPA

Yes, that is my belief

tony4147

Thanks, much appreciated.

SeekTruth

On entry to the new Single Tier pension the OP's Foundation Amount will be the higher of:

1. Current system: £113.10/wk (This is the full basic pension for 2014/15), possibly plus some Additional Pension. [Might be worth the OP getting a State Pension Forecast if has not already done so to discover whether they are entitled to any Additional Pension.]

2. New System: £149/wk (guess at full Single Tier amount for 2014/15 based on Pension Credit Standard Minimum Guarantee of £148.35) minus the Rebate Derived Amount. On the information OP has provided we can only make wild guesses at the RDA.

So, all we can say is that the OP's Foundation Amount will be no less than £113.10/wk. Each additional year of National Insurance contributions after 2016 will gain a further £4.25/wk. Therefore a further 8 or 9 years' contribution after 2016 will be sufficient to reach the full Single Tier amount.

The question of the OP's Standard Life pension is interesting as it appears it has a GMP element. Perhaps someone can answer the following questions:
a) Does SL still have a commitment to pay the GMP even though the OP reaches standard retirement age after transition to Single Tier
b) Does any commitment for SL to pay the GMP disappear if the OP takes the SL pension before reaching the standard retirement age