Scottish Widows Contracted Out Letter

Wheelpr

Hello

I have received a letter from Scottish Widows saying they failed to contract me out in 2001, and that I may be due some compensation. I only had the pension for a short period of time (about a year or two). Does this mean I should have been paying less national insurance for the last 13 years? A financial friend of mine has suggested they owe me a lot of money, but threads on here have suggested the opposite. I'd be grateful if anyone could advise me?

Many thanks

greenglide

It would only be for the period you were contributing so there could never have been much in it. If it was a private pension there wouldn't be any NI reduction to you, just the reduced AP in the SERPS / S2P scheme which would only make a difference if you reach SPA before or soon after the single tier pension starts in April 2016. A small amount of your Scottish Widows pension could have been lost, they should reimburse you for than.

Have you seen https://forums.moneysavingexpert.com/discussion/4974985 ? No great difference.

Wheelpr

Hi. Thanks you for the response. I've filled in the required paperwork and sent back to SW. I'll let you know what they say. Thanks again for answering my query.

dunstonh

When you contracted out of SERPS a rebate of part of your NI goes to the pension provider. They invest it and the idea is that they could make more than if you remain contracted in. With contracted in, the benefits are paid by the state.

Broadly speaking, it is cost neutral whether you contract out or contract in. Rebates were lowered in the years after 1997 (stealth tax) and it made it harder for contracted out benefits to be better. That is why many providers auto contracted people back in again during the early 2000s.

So, this is not money lost. It is money that has effectively gone to a different place.

The main areas where their could be redress is if you die (contracted out benefits pay the value of the pension - contracted in could lose the lot. e.g. if single). Or if you want to retire at a different age to state pension age. Contracted in benefits are paid at state pension age. Contracted out are paid at an age of your choice (from 55 to 75 currently but would have been 60-75 when you bought it).

So, people in that position could see some redress. in reality, this is a nightmare for SW to calculate and I suspect they will be paying redress that makes people better off rather than just correcting a potential issue.

Wheelpr

Thank you for the detailed response. Appreciate it!