"Flat rate" state pensions - deception exposed

neilvw

xylophone wrote: »

And as for

"The effect on the recipient of this additional State Pension/Contracted- out Deduction calculation can be virtually the same as if increases had been paid on their pre-1988 GMP. "

words fail me!

GMP or Guaranteed Minimum Pension is the name for the pension promised by a contracted-out salary-related scheme replacing SERPS given up between 1978 and 1997. National Insurance contributions paid by the employee (and employer) were lower when contracted out, to help fund these private benefits, and to recognise the reduced cost to the Government of providing additional State Pension.

The contracted-out deduction (from the full amount of additional State Pension which the person would have accrued had he not been contracted out) reflects the GMP accrued in the salary-related pension scheme.

However, there are different rules on annual increases in payment for pre- and post-1988 GMP. Pre-1988 GMP doesn't have to increase each year, whereas post-1988 GMP does.

The way the system works, people in this position get the benefit of an inflation-linked increase in the pre-1988 SERPS given up (i.e. the SERPS they don't get!), paid for by the Government, but the contracted-out deduction (COD) does not increase each year (because the COD is based on the GMP entitlement, which doesn't increase for pre-1988 benefit).

In other words, the State effectively pays for the increases on that pre-1988 GMP, which the scheme itself doesn't pay.

The document continues:

"With the closure of the additional State Pension in 2016 it will no longer be possible to continue the calculation..."

i.e. there will no longer be annual re-calculations of the COD, so this inflation-proofing won't occur - but it will be better, because:

"From April 2016 there is a legislative requirement to uprate the new State Pension by at least earnings. "

And in fact it's triple-locked until 2020 as per the Conservatives' election pledge.
The whole kaboodle will go up with the highest of prices, average earnings and 2.5% - EXCEPT for "protected payments" which are amounts paid over and above the New State Pension for people who have very high SERPS etc which takes their entitlement under the old scheme above the full New State Pension (of about £155) when the comparison is done as at April 2016. Those protected payments will go up with prices.

Hope that clears it up

xylophone

No problem with understanding GMP/COD!
But http://pensionsworld.co.uk/pw/article/pension-reform-short-changed-12334936

"The government is aware of this issue and in a response to a Freedom of Information request, it has estimated that “around a quarter of individuals with [pre-88 GMPs] relating only to private sector employment will … receive less state pension over their lifetime than they would have done under the current system”. Yet the point is barely mentioned in the raft of technical papers the government has published on the impact of the new regime. It is therefore unsurprising that the point has gone unnoticed by many.

Who will be most affected?

The individuals most likely to be impacted by the change are those retiring in the first few years of the new system. This is because they will have less chance to accrue further state pension under the new single-tier system."

SnowMan

xylophone wrote: »

Come on Snowman, that's a bit disingenuous! You know perfectly well that not only can it be made, it has been made and the Government spokesman has wriggled like a worm on a hook....:rotfl:

They've certainly tried to sweep it under the carpet. Their first attempt to defend the removing of inflationary increases on pre 88 GMPs was by pretending that the state didn't actually pay these increases :rotfl: That was simply untrue. Even the former Pension Minister Steve Webb (who deserves credit for always being very clear in stating not everyone would get £151.25pw because of the affect of contracting-out) was saying the state didn't pay these increases when obviously they did.

However, and this is where I'm coming from, I can't see any simple way of paying these increases on pre 88 GMPs once the old system is dismantled. Without going into the technicalities, it's not as simple as just keeping a separate record of a pre 88 GMP amount on the system and paying inflationary increases on that amount as an addition to state pension.

Malcolm Mclean at least outlines a suggestion for how the transition could have been handled differently in this article

http://www.actuarialpost.co.uk/article/malcolm-mclean-comments-on-dwp-factsheet-8259.htm

But I'm not sure how the buying out of rights through a cash lump sum would make things any easier. And I'm not quite sure what he's suggesting. And where's that lump sum coming from? Potentially fairer (depending on what he is suggesting) but more complicated even unworkable in my view.

It is very difficult to remotely estimate for how many of the 25% the affect will be material, although Pensions World are right about those reaching SPA soon after 6th April 2016 will be those most affected.

wotsthat

xylophone wrote: »

Who will be most affected?

The individuals most likely to be impacted by the change are those retiring in the first few years of the new system. This is because they will have less chance to accrue further state pension under the new single-tier system."

Promises from governments past and long dead politicians should never be relied upon to pay the gas bill in retirement.

I have a state pension forecast but it's no more certain to be correct than the assumptions I make about investment return, inflation tax rates etc. All that happens is as retirement approaches the lies become more accurate.

I jumped at the chance to 'opt out' because a promise made in 1988 would have no value in 2032. I would have been happy with a bird in the hand even if there had been a promise of 4 in the bush.

JezR

I see that The Telegraph is the latest to publish this as an 'emerging' story rather than one where the situation has been known from the white or even green paper stages. Supported so it seems by another lot of pension service providers (Barnett Waddingham).

greenglide

and the roundabout goes round again!

Of course if the press had been awake when this all went through parliament .....

It was clearly madness to believe the less than useful statements put out by all political parties.

JezR

There does seem to have been a bit of a decrease in those on the equivalent to the full single tier in its first year of operation - but this may a result of a more accurate and up to date calculation.

The government does now seem to state that for these people they have to take their private pension into account in delivering their overall pension; language that was around at the beginning which was somewhat submerged later.