Where did my contracted out contributions go?

Mirador

I have been reviewing 2 of my deferred pensions and both state that I was contracted out, for a long period of time and paid a reduced rate of NI. Now this may be a stupid question, but where did my contracted out contributions go?
My wife clearly has a separate scheme for her contracted out payments, administered by a Standard Life, but I have nothing from either of my previous pension schemes. There is some reference to a guaranteed minimum pension and protected rights, is this relevant?

The more I think I have got to grips with my pensions, the less I feel I know

Hedgehog99

AIUI, when contracted out, that meant you weren't paying SERPS / S2P (the earnings-related "second state pension"), but you were paying into your employer's scheme instead. That should mean you get an employer's pension that should be worth more than SERPS / S2P would have been if you'd paid the extra NI for those years.

So "where are they?" = they are your employers' pensions for those years. They're either waiting for you to claim them when you retire or you moved them when you changed jobs so that the investment was transferred to your next employer's scheme.

Mirador

Thanks for the reply Hedgehog99. My wife was also contracted at the same time, but she has two separate funds, her final salary deferred scheme and a separate scheme funded by the rebates received from the government, hence my original question. Are you saying that there were 2 options then, either set up a separate scheme or absorb into company scheme? Thanks

xylophone

She had both a deferred COSR and a COMP?

See http://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

zagfles

Mirador wrote: »

Thanks for the reply Hedgehog99. My wife was also contracted at the same time, but she has two separate funds, her final salary deferred scheme and a separate scheme funded by the rebates received from the government, hence my original question. Are you saying that there were 2 options then, either set up a separate scheme or absorb into company scheme? Thanks

The usual way would be to absorb into the company scheme, and as in your OP there's an element of it called the GMP (though this just applies to pre 1997 contributions, after that the scheme just had to meet certain minimum standards, without having a guaranteed element).

Mirador

xylophone wrote: »

She had both a deferred COSR and a COMP?

See http://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

Thanks for the link, that makes sense as her COSR has a guarantee rate of 4.5%. Looks like our refunds were simply handled differently

smjxm09

It has struck me that the motivation for being opted out was to save my company money rather than do me any favours.

I was paying 1/80 per year regardless of whether I was contacted in or out. 40 years service = half pay.

The benefit for me during the contacting out period was slightly lower NI contributions during those years, which would have had no impact on my day to day life as those savings were negligible but those lower NI contributions will have a major impact during my retirement.

zagfles

smjxm09 wrote: »

It has struck me that the motivation for being opted out was to save my company money rather than do me any favours.

I was paying 1/80 per year regardless of whether I was contacted in or out. 40 years service = half pay.

The benefit for me during the contacting out period was slightly lower NI contributions during those years, which would have had no impact on my day to day life as those savings were negligible but those lower NI contributions will have a major impact during my retirement.

The company would have put far more than the saved NI into the pension. 1/80th is an excellent pension, most people (outside the public sector) have far worse company pensions.

greenglide

smjxm09 wrote: »

It has struck me that the motivation for being opted out was to save my company money rather than do me any favours.

I was paying 1/80 per year regardless of whether I was contacted in or out. 40 years service = half pay.

The benefit for me during the contacting out period was slightly lower NI contributions during those years, which would have had no impact on my day to day life as those savings were negligible but those lower NI contributions will have a major impact during my retirement.

The employer benefits from lower employers NI but in return has to provide provide you with a significantly better pension. SERPS / S2P would have never been able to provide you with half of your pensionable salary.

Having been not contracted out during that period would have been nice but in practice this tends to be with the benefit of hindsight. Would you really have opted to pay higher NI contributions to remain not contracted out if you had been given the choice? Most people would have tended not to.

smjxm09

Would you really have opted to pay higher NI contributions to remain not contracted out if you had been given the choice? Most people would have tended not to.

If I and no doubt others were told the consequences all those years ago there would have been a lot less contracting out but no one had a crystal ball to see the consequences of a decision that was basically made for us by companies looking to save some money.

jem16

smjxm09 wrote: »

If I and no doubt others were told the consequences all those years ago there would have been a lot less contracting out but no one had a crystal ball to see the consequences of a decision that was basically made for us by companies looking to save some money.

Of course they were looking to save money as in most cases they were contributing 15% or more and you got a significantly better pension.

Your 1/80ths scheme may very well have been a 1/90ths scheme or an 1/80ths scheme minus state pension without that NI saving.