Letter from Scotish Widows - Failed to contract out of state pension

pinthetail

First of all my understanding of pensions is poor, so forgive me if I am asking silly questions.

I received a letter from Scottish widows this morning saying that they have failed to contract me out of the additional state pension scheme and I may be due a payment as a result of their error. They have asked me to provide some information so they can assess if I am due a payment as a result of the error.

Should I get any additional help or advice about this, a solicitor maybe? Or will it get sorted properly and fairly if I just go along with their processes?

What implications will it have on my pension? I intend on retiring as early as possible.

Assuming I am due a payment, would this be added into my pension pot or paid directly to me?

Thank you for taking the time to read this, any advice is greatly appreciated.

dunstonh

Should I get any additional help or advice about this, a solicitor maybe?

A solicitor is no help and you would have to pay the fees as Scot Wid would not be required to.

Or will it get sorted properly and fairly if I just go along with their processes?

Its a fairly straightforward process albeit a bit of calculating on their part once they have the info from you.

What implications will it have on my pension? I intend on retiring as early as possible.

We cant say without knowing the facts. This is why SW are asking you the questions.

Assuming I am due a payment, would this be added into my pension pot or paid directly to me?

Normally added to the pension. However, dont get excited yet. Rebates were typically only around £1000ish a year. (sometimes more, sometimes less). The fact is that you are contracted in and have benefits there so it is really a cost difference that needs to be calculated. you could find, thanks to the credit crunch, that contracting in was the better option and are no worse off.

pinthetail

Thank you for your detailed answer. I feel reassured now and I will get the information to them as soon as possible. It was about 6 or 7 years ago maybe more so hopefully it will add to the pot :-)

AlStand

I got the same letter. One of the questions they ask is what age I'm planning to retire at. Anyone know how that affects any compensation? I'm not really sure what age I'll retire at, so can (quite honestly) write anything between 55 and 85 in this box! But I obviously don't want to do anything that might minimise any payout....

dunstonh

One of the questions they ask is what age I'm planning to retire at. Anyone know how that affects any compensation?

Contracted in benefits must be paid at state pension age. Contracted out benefits can be taken at your selected retirement age.

I'm not really sure what age I'll retire at, so can (quite honestly) write anything between 55 and 85 in this box!

You could but they would also look at your current retirement provision to see if what you have written is realistic.

AlStand

Thanks dunstonh. I'm still unsure whether writing 55 or 85 in the box would (possibly) result in a higher compensation payout.

I do take your point about the retirement age in the plan, although that was decided many years ago and I'll have changed my mind several times since then!

I'm not trying to 'cheat' the system. I just want to make sure I don't cause myself any damage by giving an answer at the wrong end of the possible range (or even by stating a range, because I'm sure they'll then pick the figure thy's to their own advantage).

Thanks again for your help.

dunstonh

Thanks dunstonh. I'm still unsure whether writing 55 or 85 in the box would (possibly) result in a higher compensation payout.

The range is 55 to 75. At point of sale it would likely have been 60-75 (as you couldnt take them earlier than 60 until after April 2006. So, in reality, your selection range is 60-75. Anything outside that would be considered suspicious and unlikely. Indeed, most people go for earlier rather than later retirement than state. So, you could further cut it down from 60 to 65.

If they ask you to prove your existing retirement planning is set up for say 60, could you do that? If not, then select 65. They wont blink an eyelid at someone selecting 65 as that is the most common.

AlStand

The question I'm trying to ask (and which it seems you might feel uncomfortable answering) is, in a hypothetical world, which answer would/could result in the more beneficial payout, 60 or 65 (using your range - although my policy is from late '06, so it could be 55 I guess).

In reality I have no clue what age I'll retire at. It depends on work conditions, it depends on relatives popping their clogs, it depends on my mood! There really isn't a fixed date which is why I'm struggling to give an honest answer. I don't want to put a range because I know they'll pick the end that benefits them.

Without knowing how they calculate the (possible) compensation I don't know how to avoid giving an answer that disadvantages me.

jamesd

There is one really major issue: the change to a flat rate state pension.

For those who will have more than 35 years of national Insurance contributions at state pension age there is no benefit at all to having 36 years because the benefit is capped at £144 at 35 years*. The loss from not contracting out in that situation is the whole contracted out rebate amount because the extra year of NI gains nothing.

Knowing when you plan to retire might be taken as a proxy for working out how many years of NI contributions you will have towards the state pension.

This issue did not exist at the time Scottish Widows are considering but it does really affect you now. It's a loss that may be irrecoverable.

For the situation that SW are probably considering, you suffer a loss of accessibility of the income from the contracted out money for as many years as there are between your planned retirement date and you reaching state pension age and getting Additional State Pension due to being contracted in under the rules that existed at the time of the attempted contracting out. You have loss of growth of investments that is greater the longer there is to retirement. I don't know which of those two factors would have the greatest effect.

In general the change to the flat rate state pension means that you have probably lost the whole of the rebate amount, assuming you'll have more than 35 years by the time you reach state pension age.

*there can be a benefit if the person was in a contracted out workplace scheme, then the extra years can go to getting the person to the £144 level.

Anchoress

jamesd wrote: »

*there can be a benefit if the person was in a contracted out workplace scheme, then the extra years can go to getting the person to the £144 level.

Don't want to hijack this thread but I think you've answered a question I was going to post up.

I'll have 47 qualifying years for the state pension when I reach retirement age in 6 years time but was contracted out for 5 years into an old company pension scheme. From what you've said I'll get the full new flat rate pension. Is this correct?

greenglide

Anchoress wrote: »

I'll have 47 qualifying years for the state pension when I reach retirement age in 6 years time but was contracted out for 5 years into an old company pension scheme. From what you've said I'll get the full new flat rate pension. Is this correct?

Have you had a pension forecast recently? The amount on that will be the minumum you will get.

It isnt about the number of qualyfying years once you reach 30 or 35. If you are near SPA and most of your working life has not been contracted out then there is a good chance your AP will be enough to take you pension above the £144 amount but this does depend on earnings.

You need a forecast if you have not got one already.