New Government Pension Advice - 35yr old

NorthernMonkey1

About 6 or 7 years ago, I was one of those people with tens of thousands of pounds worth of debt, and through a lot of work, I've got myself in the position of almost no debt (a single car loan of £90 a month, and CCs which are paid in full every month) so I'm now sorting my pension.

I'm 35, and in 1999 aged 20, I signed out of serps with scottish widows. I had totally forgot about this until last month.

I called them up, expecting my pension to be worth maybe £1000 or £2000, but because of serps, is worth £29,205! Seemingly I paid into this pension via serps until 2012

I'm trying to work out what effect this has had on my state pension. My pension statement from the government website reads as follows.

Estimated pension total £73.64/week
Basic Pension, 18 qualifying years, £67.86
Additional State pension, £5.78 a week.

I've read that for the new state pension, coming into force in 2016, I'm trying to work out how many qualifiying years I've earned. I'm a little confused as to what all this means for when I retire in 33(ish) years time.

Help please

greenglide

With 18 qualifying years already you should easily acheive the full nSP amount.

And, on top of that, you will have the benefit of the private pension of £29,000 and growing(?).

At the moment there will be a deduction from the State Pension because of the contracting out pension but with 33 years to go you will easily offset that.

NorthernMonkey1

greenglide wrote: »

With 18 qualifying years already you should easily acheive the full nSP amount.

And, on top of that, you will have the benefit of the private pension of £29,000 and growing(?).

At the moment there will be a deduction from the State Pension because of the contracting out pension but with 33 years to go you will easily offset that.

So those 18 years count as a qualifying amount even though I've been opted out? I'd just trying to find out so I know what my options are for retiring at, say 60.


Although this pot isn't growing much, my current work pension is fairly good, and growing at a reasonable rate

kidmugsy

NorthernMonkey1 wrote: »

So those 18 years count as a qualifying amount even though I've been opted out?

You don't "opt out" of the State Pension, you "contract out" of the Second State Pension i.e. the earnings-related bit that's additional to the basic pension. So those 18 years count. And that's why greenglide can be so sunnily optimistic on your behalf.

jamesd

When the flat rate comes in a calculation of your pension entitlement at that time using both old and new rules will be made and the highest one will be used. The penalties for being contracted out under the new rules are so large that the old/current rules calculation will be used for you.

Under the old rules calculation each year counts fully for the basic state pension entitlement but because you were contracted out you were accruing no earnings-related additional state pension. So your foundation amount calculation will be 18/30 times the basic state pension amount in April 2016.

Each year worked under the flat rate system will increase your entitlement by 1/35th of the flat rate amount.

If you were to stop working after exactly 35 years you would not get the full flat rate amount. This is because during your contracted out years you were accruing only the basic state pension entitlement, not any additional state pension part. Since the flat rate is around 40 Pounds above the basic state pension level you'd potentially be short by about half of that.

Given your age this doesn't matter much because all that will happen is that you will continue to accrue more state pension when those who didn't contract out are working the same number of extra years without increasing their state pension at all. While you'll end up with both the full flat rate and your contracted out pension pot.

NorthernMonkey1

Thank you for your very comprehensive answer James.

It looks like I've accidentally made a fairly good investment decisions without realising

atush

You have a good start. Now you just need to make sure you are in a pension now, preferably an employers pension where they pay in too.

And if you have an emergency fund 3-6 months outgoings, i'd start a S&S isa too.

NorthernMonkey1

I'm currently paying (including employer contribution) £787/month into my work pension and I've got a couple of other funds worth circa £15,000 and £20,000, so I'm hoping to get things on track soon.

atush

are those 'funds' cash, S&S sias or what?