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

happyshopper

jamesd wrote: »

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.

Jamesd, thank you for taking the time to reply again. Somehow I managed to miss your reply to my original post, else I would have thanked you then and taken it forward. I will do so now and update the thread with any response from SW.

Katie

DaveMcG

My reading of the single-tier effect is this:

A) someone has accrued state pension plus serps/s2p benefits greater than the single tier eg £200 per week - then that is what will be paid and additional years working will not provide a higher pension.

someone has accrued state pension plus serps/s2p benefits less than the single-tier eg £129 per week - that will become their "foundation amount" and they will accrue additional pension at ~£4 a week for every year worked until they reach the single-tier amount.

I doubt that there would be a loss in scenario A but in scenario B, if, for example, there was 10 years until retirement, the full single-tier would be accrued and in comparison to someone who had contracted out (and had the same earnings and age), the contracted out person would have a separate fund and the same state pension and have gained from contracting out.

If my reading is correct, the hordes of media inspired ranters fuming about being contracted out and losing their pension should in fact be on their knees thanking those who contracted them out.

Caveat: my "reading" might be completely wrong and it is me who is ranting....

jamesd

The loss happens whenever all future years worked would produce an amount that reaches the flat rate cap level of about £155 a week. That can happen in your case A or B. In case A it's already happened, in case B it hasn't yet happened.

There is no extra loss if at the time of the failure to contract out the accrued state pension benefits were already above the flat rate cap level.

You're right that the state pension change has increased the benefit of contracting out and hence also the amount of redress appropriate for failure to carry out instructions to contract out.