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

Anchoress

Thanks for your reply Greenglide. I've called the pension service and apparently they don't do forecasts anymore and they can't tell me at this time what State Pension I will get under the new system. Someone is going to call me back in a couple of weeks to go through it with me.

All in all pretty unhelpful really as what I get in state pension will have a bearing on the decision I make concerning my private pension that I have to make within the next few months.

jamesd

You can get a state pension statement instead of a forecast. That would tell you what to expect under current rules. Given your contribution history it is likely that under current rules you would be entitled to more than the flat rate scheme produces. That higher entitlement would be preserved, called the foundation amount. That foundation amount is to be calculated under old and new rules. You get the higher of the two calculations as the foundation amount.

The current rules combine the basic state pension with the earnings-related additional state pension. The ASP is what is funder by SERPS and now by S2P. This would take even a person with long working history at a low wage to something like £180-190 in combined state pension. £250 is possible with a long history at high income. The flat rate plan replaces this with just a single state pension at £144 for those with sufficient years to get it all.

admann

I also have the same letter and the same question. In my case I joined the scheme with a previous employer in 2003, and left that company in 2012. I think I had originally had a working retirement date of 60 list, but 75-80 is more realistic. I can't figure out the details of the calculation that they are doing..... From what jamesd says it looks like we should use an estimate at the higher end, which is probably more realistic anyway.

happyshopper

Hello,

Just to say that I had the same letter in May - I posted here about it: https://forums.moneysavingexpert.com/discussion/4973461.

I received a letter today with a cheque for £660 compensation for 7 years worth of pension contributions (2005-2011). Details of their calculations are on the back of the letter.

The compensation is all for the loss of tax saving I could have made by taking some of my pension fund free of tax when I retire. They decided that I would receive a higher amount of pension through having been contracted in to the additional state pension scheme, than if I had been contracted out of it as requested, so no compensation due for that.

Would be interested to hear the outcomes for others although I know they are impossible to compare as different salaries, ages, lengths of employment etc.

HS

jamesd

Did they say anything about whether you get nothing at all because you have so many years of contributions that you'd already get the maximum flat rate state pension? With only 35 years to get the maximum it's not likely to be really true that you would get more from being contracted in for most people. Most will have nothing at all from being contracted in instead.

happyshopper

jamesd wrote: »

Did they say anything about whether you get nothing at all because you have so many years of contributions that you'd already get the maximum flat rate state pension? With only 35 years to get the maximum it's not likely to be really true that you would get more from being contracted in for most people. Most will have nothing at all from being contracted in instead.

Hello Jamesd,

No it doesn't say anything about that. I must admit to not really understanding your question, but I don't have anywhere near 35 years of contributions at the moment. I did say on the questionnaire that I wanted to retire at 55 but they haven't mentioned that at all and calculated everything as if I will retire at 67.

It says

For the tax years 2005/6 to 2011/12 the projected rebate value and additional state pension value at SPA are:
Rebate value at SPA - £27298.14 in 2037
Additional state pension value at SPA - £33249.45 in 2037

Note: As the projected value of your additional state pension at your SPA is greater than the projected vlue of the rebates, there is no payment due.

HS

bigheadxx

The £144 is a theoretical figure with many people who were "contracted in" getting more and those contracted out getting less. Accrued S2P benefits will remain with the higher of the two figures being paid out.

Over time the flat rate will be paid to everybody. If you are under forty you wont get any kind of S2P and under thirty you will never have heard of it.

Newhome1

Hi,
I also recieved a letter and a cheque.
However I referred to the Pensions Advisory Service to check the calculation and they believe that the calculation doesnt take into account the changes in the legislation - so it been passed back to Scottish widows maybe to recalculate.

Has anyone else queried this and what was the outcome?

Thanks, Amanda

happyshopper

Newhome1 wrote: »

Hi,
I also recieved a letter and a cheque.
However I referred to the Pensions Advisory Service to check the calculation and they believe that the calculation doesnt take into account the changes in the legislation - so it been passed back to Scottish widows maybe to recalculate.

Has anyone else queried this and what was the outcome?

Thanks, Amanda

Hi Amanda. Was interested to hear that you referred your case to the PAS. Would you be willing to share with me what they said specifically about the changes in the legislation? I wonder if I ought to refer mine too and it would be useful to know what legislation to refer to.

Although as I have cashed the cheque, I guess that means that I accepted their offer.

hs

jamesd

happyshopper, as said in a reply to your original post you should take the matter further because of the change in the law about state pensions.

This is because the flat rate scheme caps the amount of income-related state pension that is payable, preventing people from getting that once their entitlement reaches the full flat rate level. So any calculation that assumes that it just goes on increasing while working will over-state how much of that income is available, producing redress payments that are too low.

Many people who contracted out will have state pension entitlements that will be over the flat rate cap level, so will see no increase at all from being contracted in by mistake. If a person's state pension forecast gives a total state pension above £155 (whatever the flat rate cap is) minus 1/30th of that for each year that they expect to continue working they should complain because they really get nothing more from being contracted in for extra years.