STATE Pension ALERT !

Snakey

I accidentally contracted out for about 12 years. Well, the original decision was deliberate but I had no idea it was a standing instruction which lasted forever. I left the job (and ceased making pension payments into that scheme) six months later and assumed, without actually giving it any thought, that was the end of the contracting-out - nothing was showing on my payslips in future years (full NI was being paid) and I didn't receive any statements or anything. I can see now that I just didn't understand what I'd agreed to or how it worked, but it was only when I went to transfer that piddly six months worth of contributions into my new scheme, in 2011, that I thought "wow, that couple of hundred quid made me an absolute fortune..." and then the penny dropped. In fact the value of the pot (after thirteen years) was equal to the amount I'd put in over the years via contracting-out, and so it was possibly the worst investment I'd ever made in my life.

So... a question, should anybody know. Suppose my NIC-paying career lasts for 50 years, and you need 35 years for max State Pension, and I was contracted-out for 13 years. Does that mean I get the max SP (because I made 35+ years at full rate), or does it mean I get max SP less 13 sets of deductions (for the 13 years I was contracted out).

If the latter, it sucks a bit that I would be worse off after >35 years of full contributions than somebody who had only paid in for 35 years and then stopped! if the former, I guess I'm dancing in the streets - or I would be, had the investment itself not been so rubbish, but nonetheless it's not to be sneezed at.

As for the point made in the OP, I too was told, back in the early 1990's, that by the time I got to State pension age it would almost certainly not exist and that I should plan for retirement without relying on it and treat anything I did get as a nice bonus.

chucknorris

Yes - I also have a works pension

WE_ARE_ALL_IN? wrote: »

From 2016 there is a new state pension for those born after 1953.
Read the information on the GOV.UK web site. /"new-state-pension/print" and pay particular attention to Section 4.
Is this a long term intent to remove or means test for the new state pension when you get to the grand old age of 67.

Isn't it good news that we are now living longer? Would you rather draw your state pension at 65 and die in your 70's?


You make it sound that 67 is too old to do anything, a few years ago an 83 year old finished in front of me in the Dorking 10 mile road race (I was 52 at the time). I looked up his previous race times and spotted that he had ran a half marathon in just over 90 mins (in his 80's), what is your best half marathon time?

nearlyrich

I have 37 years of contributions I know I will get a state pension when I am 67 and I also have made plans for retiring at 55 (2 more years) by voluntarily paying into a range of savings and pensions throughout my working life, retirement is like Christmas we all know it's going to happen and panicking at the last minute is not the solution...

PlymouthMaid

Can't tick a choice in the poll as I need 'Yes hope I get it as I don't have a work pension but I am not on benefits'. The new pensions have not yet started in my workplace but even when they do I can't really afford to lose any of my pitiful wage packet and at 51 am doubtful it is worth scrimping for.

gadgetmind

Snakey wrote: »

In fact the value of the pot (after thirteen years) was equal to the amount I'd put in over the years via contracting-out, and so it was possibly the worst investment I'd ever made in my life.

When I merged the Protected Rights pots from self+spouse's contracting out into our main pensions, we had close on £60k in there.

We'll now also both still get full SP (me under old scheme, wife under new) so we've got no complaints.

gadgetmind

Snakey wrote: »

Does that mean I get the max SP (because I made 35+ years at full rate), or does it mean I get max SP less 13 sets of deductions (for the 13 years I was contracted out).

Have you read the Single Tier Pension whitepaper?

You will get the largest of your entitlement under the current scheme (have you obtained a current state pension statement?) or the new single flat rate. The latter is 1/35th of the (escalating) £144 for each full year of NI minus the contracted out deduction.

xylophone

The new pensions have not yet started in my workplace but even when they do I can't really afford to lose any of my pitiful wage packet and at 51 am doubtful it is worth scrimping for.

Your employer will be contributing so it will be worth your while?

Don't forget the tax relief. http://www.hmrc.gov.uk/incometax/relief-pension.htm

https://www.gov.uk/workplacepensions?gclid=CM76zLS6wL8CFWPItAodmxwAJw

You expect to be working until you are 67?

ScottyLP

No - I have a works pension

I'm only 22, so any information out there now is likely to be fairly out of date when I come to retirement.

I do think there will be an element of state pension, but not as much as there is now.

I'm also fortunate to probably work for one of the only private companies to offer a defined benefit pension AND to be contributing a small amount to a SIPP and think that in order to live comfortably in retirement people should be making their own arrangements and not relying on the state.

jamesd

Snakey wrote: »

I accidentally contracted out for about 12 years. ...... it was only when I went to transfer that piddly six months worth of contributions into my new scheme, in 2011, that I thought "wow, that couple of hundred quid made me an absolute fortune..." and then the penny dropped. In fact the value of the pot (after thirteen years) was equal to the amount I'd put in over the years via contracting-out, and so it was possibly the worst investment I'd ever made in my life.

It was probably one of your better investment decisions, not one of your worst. If you had not contracted out you would probably end up with nothing instead of what you now have.

Snakey wrote: »

Suppose my NIC-paying career lasts for 50 years, and you need 35 years for max State Pension, and I was contracted-out for 13 years. Does that mean I get the max SP (because I made 35+ years at full rate), or does it mean I get max SP less 13 sets of deductions (for the 13 years I was contracted out).

There is a set limit on the amount of state pension that you can get. That limit is what 35 years of normal contributions will achieve. For years beyond those 35, no more state pension will accrue. Work 50 years, get the same pension as working 35 years.

The accruals until the new system comes in have two parts, the basic state pension portion and the additional state pension portion. The additional state pension portion is not present when a person has contracted out, the basic portion is. What this means is that say ten years of being contracted out will not mean ten years of no accrual but more like 5-8 years, depending on just how much the pay might have been. This is worked out by calculating your total state pension entitlement when the new system comes in and giving you the higher of the old or new calculation amounts.

Now, for a person who was contracted out, they don't stop gaining after 35 years. Instead they continue to gain for extra years until they either stop working or reach the same weekly amount as the full 35 years would have got a contracted in person.

What this means for those who have a full working life in the UK is that most in the past will just gain nothing for the extra years beyond 35 but those who contracted out will continue to gain. They can end up with both the contracted out pot of money and the full new state pension. It will take more than 35 years but taking say 40 years to have full plus the contracted out pot beats 35 and gaining nothing from the rest.

Rejoice that you contracted out. It makes you more likely to be one of the winners, or at least lose less, of the flat rate state pension system.

The winners are those who were on benefits for life or didn't work much or only in low paid jobs and the self-employed. They get the same entitlement as those who work a full working life in a high paying job.

jamesd

WE_ARE_ALL_IN? wrote: »

pay particular attention to Section 4. ... Work hard , save hard, plan for your future retirment and then find out you have paid into a system that has no intent of paying anything back. :mad:

I suggest that you read my post to Snakey because you seem to have completely misunderstood the meaning of that part of the document.

Those who have contracted out are winners under the new system, not losers. They will continue to accrue flat rate state pension entitlement beyond 35 years until they reach the maximum flat rate level. Those who were not contracted out will get nothing beyond the 35 years.

For those in a workplace defined benefit pension they already under current rules get the Additional State Pension portion of their state pension reduced by a contracted out deduction because they weren't making S2P or SERPS payments while contracted out, instead those were going to their workplace pension. The basic state pension portion of the accrual continued as normal, it was just the SERPS/S2P portion that was reduced. Under the flat rate system the works pension keeps that money to use to pay the benefits and the employee just continues to accrue more state pension until they reach the flat rate maximum level or stop working. This form of contracting out is being removed soon, the workplace pensions will keep the money paid to them or in the case of many public sector schemes, won't have to do anything about the money their neither paid nor received.

Those who contracted out into a personal pension or workplace defined contribution pension get to keep their personal pension pot built up with the contracted out rebate money and continue to accrue extra state pension until they reach the flat rate maximum or stop working. The basic state pension portion of the accrual continued as normal, it was just the SERPS/S2P portion that was reduced, with the contracted out rebate money being paid into their defined contribution pension instead of building up Additional State Pension entitlement. Contracting out of this type was ended a few years ago, people kept their pots of money though.

You appear to be under the incorrect impression that being contracted out meant there was no state pension accrual at all and perhaps also not to be aware that all it takes to get to the full entitlement is to carry on working beyond the 35 years.

Those who were contracted out are winners or lose less people under the flat rate system. They can get more than they would have under the current system.