MSE News: Only 45% of those retiring to get full 'single-tier' state pension

greenglide

Private sector DB schemes still open to future accrual are being allowed to reduce benefits to take account of the fact that contracting out is being abolished.

I thought the permissive action they they could take, without requiring members agreement, was to increase contributions rather than reducing benefits? The idea, after all, is not that the employer benefits but that it offsets their increased costs caused by the very precise increase in employer's NI contributions.

Is it only private schemes that this affects? Will public sector just swallow the cost? For the funded ones in particular (like LGPS) this will be an issue.

hugheskevi

I thought the permissive action they they could take, without requiring members agreement, was to increase contributions rather than reducing benefits?

They can do either (eg, as set out in this Impact Assessment) (they cannot reduce accrued benefits, just reduce the value of pension accruals going forward).

The idea, after all, is not that the employer benefits but that it offsets their increased costs caused by the very precise increase in employer's NI contributions.

The employer cannot benefit from the change in pension benefits - the scheme actuary has to sign off that the change only recoups the loss from contracting-out.

Is it only private schemes that this affects?

Yes.

Will public sector just swallow the cost? For the funded ones in particular (like LGPS) this will be an issue.

Yes - the Government had signed up to the new public service pension schemes with a guarantee of 25 years of no change in 2013. Whilst I think most would be rather surprised if there are actually 25 years of no change, reneging on the guarantee before the schemes were even in place in 2016 could lead to criticism regarding negotiating in bad faith, or even misleading Parliament.

Regarding your other comments about Government using the term 'flat rate' I was quite amused by the start to the Impact Assessment linked above...

What is the problem under consideration? Why is government intervention necessary? The new State Pension will be a simple, flat-rate contributory pension.

smjxm09

If the 'flat rate' state pension were to be applied retrospectively, then both you and your employer would be facing a big NI bill and your occupational pension would be up for a corresponding hit.

Lets not forget that I have paid an additional 7 years worth of NI that would have more than covered the reduced NI contracted out contributions.

cjt105

Do we yet know how much the deduction is going to be for each year one was contracted out?

hyubh

greenglide wrote: »

For the funded ones in particular (like LGPS) this will be an issue.

Indeed - not much joined-up thinking between different government ministers on that one. Personally I think the best solution would be to keep contracting out going - the main unions involved couldn't really complain given their own publicity promoting the CARE scheme before it came in assumed contracting out, highlighting contribution rates net of the NI category D reduction...

hyubh

smjxm09 wrote: »

Lets not forget that I have paid an additional 7 years worth of NI that would have more than covered the reduced NI contracted out contributions.

Tax and NI rates weren't set assuming contracting out retrospectively wouldn't make a difference decades down the line. You get the point you aren't actually losing anything, right? You're just not gaining under the new system compared to the old.

(By the by, maybe it does, but does your 7 year calculation include the missing employer NICs, plus interest...?)

JezR

For people coming up to retire now, during nearly all of their working life 44 years of NI was needed to qualify for a full basic state pension (39 if a woman). So anyone with less than these has already had a boost to their basic SP.

tigerspill

hyubh wrote: »

Tax and NI rates weren't set assuming contracting out retrospectively wouldn't make a difference decades down the line. You get the point you aren't actually losing anything, right? You're just not gaining under the new system compared to the old.

(By the by, maybe it does, but does your 7 year calculation include the missing employer NICs, plus interest...?)

Can I just check what this is saying - that even for those contracted out - if they have 30+ years of contributions, they they will get a minimum of the current £113 per week no matter what?

molerat

tigerspill wrote: »

Can I just check what this is saying - that even for those contracted out - if they have 30+ years of contributions, they they will get a minimum of the current £113 per week no matter what?

If they already have that 30 years then yes. In 2016 they will be given a "foundation amount", the starting number to go forward into the new scheme with. This will be the higher of the old or new schemes, the new having a deduction for contracting out. In my case it is £130 old and £75 new so I will start with the £130, Mrs M has £102 never contracted out old and £114 new so goes in with £114.