Basic query

costingbunny_2

I had always assumed that I would get my basic state pension irrespective of other pensions. A colleague has told me that her father gets his state pension reduced by the amount of his private pension, or, say a private pension of £200 a month means his state pension is reduced by £200. Surely this isn't right? She's adamant it is and therefore doesn't pay into a pension as she wouldn't end up any better off?? I'm paying over £5,000 a yr into a private pension!?

Triumph13

Adamant she may be, but she's also wrong.

What may be happening is that her father is on State Pension plus pension credit and the pension credit may be at a reduced amount because of his private pension.

With the change to single tier pension, pension credit largely disappears, so she is doing an excellent job of shooting herself in the foot. One of the whole points behind the single tier pension is to avoid the kind of situation her father is in and to try and make sure that it pretty well always pays to pay into a pension.

dunstonh

A colleague has told me that her father gets his state pension reduced by the amount of his private pension, or, say a private pension of £200 a month means his state pension is reduced by £200. Surely this isn't right?

If your colleagues father contracted out of SERPS/S2P then the additional state pension is reduced. However, the basic state pension is unchanged. However, personal provision is increased because of the rebates that went to the personal pension during the years he was contracted out. i.e. instead of the state paying the additional state pension, the personal pension does instead.

If your colleagues father was in a defined benefit pension, the part of the pension can be linked to contracting out (although same name, it works differently in occupational pensions). He would have paid lower NI and the occupational pension covers the bit that the additional state pension would have paid out (very simplified explanation as there is more to it than that).

Personal contributions (e.g. your direct debit or employer contriubtion) into a pension have no impact on the state pension.

She's adamant it is and therefore doesn't pay into a pension as she wouldn't end up any better off??

A case of 2+2=5. She is making the wrong assumptions and because of that she is making the wrong decision.

xylophone

http://forums.moneysavingexpert.com/showthread.php?t=4532605
See post 12.

kidmugsy

costingbunny wrote: »

I had always assumed that I would get my basic state pension irrespective of other pensions. A colleague has told me that her father gets his state pension reduced by the amount of his private pension?

There's an old-fashioned style of Final Salary pension that promised (say) £10,000 p.a. from state retirement age of 65. However with a scheme retirement age of 60 it payed out more to 60-65 year-olds to compensate them for the state pension they weren't yet getting. So it might pay out, for example, £15k p.a. for 60-65, then £10k thereafter p.a. In other words, it "bridged the gap" to age 65. Maybe that's what her father has and she's just misunderstood his complaints.

[Deleted User]

costingbunny wrote: »

She's adamant it is and therefore doesn't pay into a pension as she wouldn't end up any better off???

:doh:

I do not want to be in the room when she finds out that she has sabotaged her retirement in potentially irreparable ways! Hopefully she invested the money elsewhere and didn't just spend it...

costingbunny_2

Thanks all. I knew she was wrong but didn't want to say anything. If state pensions were reduced by any private pension no one would bother! Oh well, least I know I'm ok with my private pension. Ta