Contracting out off SERPS According to FTadviser the goverment is cheating people

xylophone

You can read https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

zagfles

grey_gym_sock wrote: »

yes, your entitlement up to april 2016 (called the "foundation amount") is whichever gives a higher figure out of the old and new ways of calculating it.

so if the old way gives £138, and the new way (c. £148, minus deductions for contracting out) is less, you get the £138.

It'll be the old way - anyone with decades of contracting out will almost certainly get a higher calculation under the old scheme so that's what'll be used.

agarnett

chris_james wrote: »

... I have been essentially Contracted out since 1989 - first in a contracted out private pension scheme ...

Is your private scheme a DC occupational scheme? One where you got set up with a SERPS Personal Pension policy to run alongside the contracted out occupational scheme to complete the matter ? If so, and if it started in 1989 it might actually be retrospective to 6 April 1987, because the government were promoting the idea of Contracted out of SERPS PP policies and allowing backdating and gave a 2% (of annual salary, I think?) start bonus too. If so, it'll be mentioned in a single sheet policy schedule if you still have it.

Otherwise I don't think there was anything else SERPS wise to look out for in contracted out DB schemes at the time as they'd already been running as contracted out since 1978 as described in the article you quoted - except of course, the unexpected!

To be honest, I like tens of thousands I presume, am really am confused by all this - I have been waiting weeks for my State Pension Forecast to give me a clue what HMRC thinks, but I know I was contracted out in a DB scheme from the late 70s until late 80s, and not only does that scheme have some kind of GMP provision because of the contracting out, but the pension in it starts paying a pension at age 60 but then reduces via something I did not expect, until I looked closely, called a "State Pension Deduction", starting at State Retirement Date - some kind of leveling of total pension income feature reflecting the fact that the State Pension has finally kicked in.

So all this for me begins to sound like a potential treble whammy now -

1. not only does my past membership of a contracted out DB scheme potentially affect my ability to qualify for a full flat rate pension so I will get something less than the £148 or equivalent (I have almost no AP as I am a few years younger than the chris james), but
2. when I do qualify for the State Pension - whatever it happens to calculate out at in my case - at age 66, my DB pension will (if I haven't cashed it all before then tax free by claiming residency in Portugal ) immediately become less again , and perhaps just as importantly
3. Did I deduce in the FTAdviser article kindly requoted by the OP last summer, that the inflation protection multipliers have been abdicated from 2016 forward?

And never mind the "old way" versus the "new way" and the State Pension reduction effect of long periods Contracted out of SERPS - I think the mixed bag of GMP liabilities alone in some of our histories creates enormous scope for there being a terrible mess in HMRC calculations for each of our entitlements. I understand that they will be calculating each of our entitlements by 2018 at the latest, and then they won't keep the records or entertain subsequent queries of their calculations - our GMP pension providers will be told once and for all what their bit is, HMRC will have a hard record of what their reduction will be going forward, and that's it, over and goodnight!

I don't think government in the 70s ever imagined that so many of us would collect such a mixed bag of entitlements before retirement. I have 3 pensions containing GMP elements including a surviving contracted out DB scheme, a Section 32 buy out policy that replaced a wound up contracted out DB scheme, and my Contracted out of SERPS personal pension policy! I have no idea whatsoever how the three elements will interact and when they do interact, what HMRC will be trying to guarantee for my benefit (remembering that the G in GMP was always a Guarantee required by HMG), least of all what sort of calculations have to be performed for them to get balanced answers of who is to guarantee what!

Will HMRC be attempting to match them exactly to all our contracted out years and then applying guaranteed multipliers (people have mentioned fixed multipliers of 6.5%pa, 7.5% and even 8.5%) to a proportion of whatever the state pension was in each year of contribution? That'll be a muddle in my case

1. because I think that two of the three overlap by a couple of years , and
2. because the third (the Section 32 policy) contains a clause that the GMP was estimated because of unknowns and so, in fact is not guaranteed at all!

There's one other thing I am becoming very hazy about and that is the prime intention of the contracting out idea as part of a private pension. What was it ?

Was it an assumption that the State Earnings Related Pension part of a pension might just as well be funded by a specialist pension provider as unfunded by HMG? And therefore it was calculated by HMG to be worth it to them to abdicate responsibility for it by rebating a relatively small part of the NI to "fund" it privately on the cheap?

If so, then are there actually two benefit parts to a DB pension that contains GMP:

1. The DB pension (a proportion of inflation protected Final Salary - index linked to RPI or CPI with some cap)
2. The SERPS GMP? (inflation protected by fixed multipliers)

In mine, they it looks like they get blended together and despite xylophone's always useful links to relevant online documents, I really haven't a clue whether they amount to something based on Final Salary plus or just on Final Salary, especially after State Pension Age! I think it can only be the latter ... originally as a kind of DB scheme employer incentivisation by HMG, but somehow now diluted into something that (whether schemes or Contracted Out pots have survived to retirement or not) is being clawed back by HMG. And in my case after State Pension Age, my DB benefit even looks like it becomes based on Final Salary minus State Pension Deduction under my scheme rules!