Contracted out question

rounderbout1971

Please can anyone help me, I have decided to retire at around April time my d.o.b is 20/04/1959. at this moment I have 39 qualififying years worth £113.10 a week, additional state pension is £49.97 a week. I know that being contracted out will reduce the additional pension but I do not know how much and my statement does not show it.
My contracted out dates are 28/12/1988 to 02/07/2004.
Also when do we get another year of NIC stamp as this can be used for a retirement date for me.

This is a fantastic forum and I come here like every day, the questions and the people that respond to them is a pleasure to read.
Thank you for looking

xylophone

You will draw your state pension under the new scheme.

https://www.gov.uk/new-state-pension/overview

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

You will shortly be eligible to apply for a new style statement.
https://forums.moneysavingexpert.com/discussion/5171092

Joan49

There is no additional pension in the new scheme. You need to have paid NI for 35 years at the full rate to get the full pension. If you have been contracted out for any length of time then it is likely you will receive less than the full amount.
The government website is not at all clear on how it will be worked out but it seems to indicate that you will not be worse off than you would have been under the old system. A lot of people who are expecting to get the new amount are going to be very disappointed. I only expect to get the lower figure of £113.10.

JezR

You don't say how long you were contracted out, but remember that one of the two mechanisms of calculating the new state pension is what you would get under the pre-existing regime. From above your statement indicates this to be £163.07 in present day terms which is higher than the full new pension is going to be so is going to be the appropriate calculation.

The reference to the actual figure potentially being less than this relates to the year-to-year variability in the old system, not some additional cut relating to the changes.

bigfreddiel

The gov will work out your pension using the old and new rules taking into account opted in and out periods and you will get the higher of the two figures.

Cheers fj

jamesd

As a rough guess those contracted out years would reduce your additional state pension by about half. You should ask for a new state pension statement that will tell you your old rules, new rules calculations and the foundation amount for the flat rate system that will be the higher of those two. Unfortunately it appears that you're not yet 55 and at present the new calculations are only available to those who are at least 55, so that's something to ask for when you become 55.

While still working before flat rate comes in your additional state pension portion will continue to increase, so will your foundation amount. Do not buy more years before the flat rate comes in, it's not possible for that to increase your state pension at all because you are already entitled to the maximum basic state pension and that's all that buying years increases. This will change once the flat rate comes in, then each year bought will get you 1/35th of the flat rate, regardless of how many years you already have.

Once the flat rate system starts you will no longer get the earnings-related increase in additional state pension for each year worked. Instead you will get 1/35th of the flat rate amount added for each year that counts. Until you reach state pension age you can use self-employed contributions or buy each year to get those increases. They are an excellent deal and you should do this if you can possibly afford it.

With a date of birth of 20/04/1959 your state pension date will be 20 April 2025 if you're a man and the same if you're a woman, both at age 66. That should leave you time to get more years under the flat rate system to raise your payment under that to the maximum level.

Meanwhile you haven't actually lost out by being contracted out since you either have that contracted out pot on top of this or your past employers will be paying you that money instead of the state system. You can end up gaining compared to those who didn't opt out because you're able to get both the contracted out money and the maximum flat rate. The best they can do is just the maximum flat rate.

greenglide

You can end up gaining compared to those who didn't opt out because you're able to get both the contracted out money and the maximum flat rate. The best they can do is just the maximum flat rate.

Unless the the starting amount under the old rules is greater than the maximum nSP amount in which case they will get that amount (paid as the maximum nSP plus Protected Payment). They will not be able to increase this, apart from inflation linked increases.

jamesd

Right, but that's not applicable in this case because it is effectively certain that the foundation amount cannot be above the flat rate, due to the range of years involved in the contracting out.

greenglide

at this moment I have 39 qualififying years worth £113.10 a week, additional state pension is £49.97 a week

But the OP claims to have 35 years and an accrued AP of £49.97 which gives them more than the nSP maximum from old rules?

kangoora

Is there an easy way to calculate your contracted-in increment to the basic state pension?

When I plan to retire in 3-5 years time I'll have >35 years NI contributions and I will have been contracted-in for 12 years in my current employment by April 2016. I'd have to dig around to see whether I have any other contracted-in years but I suspect not many.

Would this entitle me to £113 plus £x times 12 (years)?

I got a statement last year which said I had an amount of £143 currently under the old rules but as the poster above I was worried by the statement about "this could be reduced if you were contracted out between 1978 and 2014".

greenglide

The amount of the reduction cannot be calculated until the AP and COD are known at the April before you achieve SPa.

The calculations are complex and rely on knowing lots of things that, in practice, only HMRC know.