The Real Truth of new 'flat rate' pension (where everybody gets different amounts)

jamesd

Coyrls, given that you were contracted out between 1989 and 2000 most of that is in the period where a contracted out deduction based on GMP rules will be used. For the period from 1997 to 2000 your record should already be right and not include any additional state pension. My guess is that the COD for the years 1989-1996 will eliminate much of your ASP entitlement under the old rules, including much of it for the years contracted in. Page 7 explains much of the reason for this in the paragraph beginning "However" and the start of page 11 explains about the COD being possibly greater than the whole Additional State Pension amount.

coyrls

jamesd wrote: »

Coyrls, given that you were contracted out between 1989 and 2000 most of that is in the period where a contracted out deduction based on GMP rules will be used. For the period from 1997 to 2000 your record should already be right and not include any additional state pension. My guess is that the COD for the years 1989-1996 will eliminate much of your ASP entitlement under the old rules, including much of it for the years contracted in. Page 7 explains much of the reason for this in the paragraph beginning "However" and the start of page 11 explains about the COD being possibly greater than the whole Additional State Pension amount.

Hi Jamesd,

This seems a very different answer from the one you gave me in this thread: https://forums.moneysavingexpert.com/discussion/72831

I asked:

I'm very confused about all this. I am 58 and so I will be eligible for my state pension in 2022 under the new scheme.

My online state pension forecast says that so far I have 36 qualifying years and that my additional state pension based on my NI contributions to date is £60.24 a week. The forecast for my additional state pension amount seems to be going up, a statement for the previous tax year was for £59.14 a week.


However I was contracted out to a personal pension (minimum contributions) from March 1989 to November 1990 and then from November 1990 to July 2000 I was contracted out in an employer’s defined contribution scheme. I was contracted back in from July 2000.


Is there any way that I can work out what my state pension will be under the new scheme?

And you replied:

The personal pension time will be accurately shown on the state pension statement. [STRIKE]To adjust for the defined benefit time use (total working years - 10) / (total working years) times whatever the statement says about the additional state pension amount. That will probably understate how much additional state pension you will get but it'll give you a useful idea for planning. [/STRIKE] Last edited by jamesd; 03-08-2014 at 3:52 PM. Reason: strike through defined benefit part, it's defined contribution

As you mention in your edit comments, you scored out your original reply when you realised I was talking about defined contributions. Are you now saying that my forecast will not be accurate?

As mentioned in a previous post, the advice at the time was to contract back in at a certain age. In my case, I was contracted back in in 2000 when I joined an employer with a contracted in scheme (from an employer with a contracted out scheme), it seems that I should have contracted out to a personal pension, as the 15 additional years contracted in appear to have delivered no benefit to me, if your second view is correct.

coyrls

greenglide wrote: »

Yes, it is the same calculation. The old rules calculation is precisely the calculation you would have got if your SPa date was 6/4/2016.

The caveat around the old rules amount is present on forecasts and I have always thought it was due to the recalculation of the GMP/CODS relationship. They must calculate it finally at 6/4/2016 as the starting amount is set then and only changes in line with inflation - triple lock up to nSP maximum and CPI over this.

Hi Greenglide,

In the same thread that Jamesd answered my question (https://forums.moneysavingexpert.com/discussion/72831

I'm very confused about all this. I am 58 and so I will be eligible for my state pension in 2022 under the new scheme.

My online state pension forecast says that so far I have 36 qualifying years and that my additional state pension based on my NI contributions to date is £60.24 a week. The forecast for my additional state pension amount seems to be going up, a statement for the previous tax year was for £59.14 a week.


However I was contracted out to a personal pension (minimum contributions) from March 1989 to November 1990 and then from November 1990 to July 2000 I was contracted out in an employer’s defined contribution scheme. I was contracted back in from July 2000.


Is there any way that I can work out what my state pension will be under the new scheme?

You provided the following answer:

Since you have a full state pension under the current scheme and an amount of AP currently to get you over the STP standard amount you will get at least all of the amount on the forecast plus any further AP earned over the next 2 years all index linked. The fact you have been contracted out for part of your working life will make no difference as your starting amount will be higher under the current rules.

So the current value is around £173 per week.

Are you now saying this is wrong?

coyrls

The above is quite critical to me, as it means a difference of over £3,000 a year index linked from age 66. I had been including this in my retirement planning. I took voluntary redundancy at the begining of this year and hadn't planned to go back to work.

agarnett

jamesd wrote:

The scam is perpetrated by the author of the piece and it appears to have suckered you in. Just in case I wasn't sufficiently clear with my earlier debunking: the author misled us about her entitlements. She will really get more than the full flat rate. She did this by pretending that the PPF doesn't exist, ignoring the value of her defined contributions pension and apparently using an age 55 annuity purchase rate to work out what she needed to catch up on the shortfall, most of which won't actually be a shortfall anyway.

Jamesd, are you feeling yourself ? Your tone seems to have become one of irritation and that is unlike you. Has your username been hijacked :eek:

I am uncertain about why you have put so much criticism Teresa Hunter's way about the PPF ramifications of a contracted out private sector DB scheme going t|ts up before it satisfies its obligations to a member.

In her example, Ms Hunter was talking about just one year contracted out in such a scheme, and I think any of us would easily and sensibly make the following statement (the statement she made) in the same circumstances:

[SIZE=-1]It doesn’t help that DWP keeps telling me that my employer will make up the £48.95 weekly: there is no employer, so they won’t. My first year contracted out was with a company that disappeared decades ago. The scheme still exists, but the size of the deficit is such that I have very little expectation of ever receiving the pittance I might be due.[/SIZE]

Now, yes it is pleasing that PPF exists, but let us remember it is not so long since its very wobbly beginnings (funding being a tricky issue!). Even now, whilst we breathe more easily about it as a safety net, we don't kid ourselves that PPF automatically or magically come riding to the immediate rescue, rescue without delays and hoops to jump through. And in any event, to what extent is a defunct employer scheme responsible for just one year of contracted out GMP going to be liable for such a big difference (between old rules calculations and new rules calculations) anyway?

I am sure you have a point with the annuity rate part, but surely you aren't saying she deliberately overstated the annuity purchase amount at £75,000? Didn't you yourself correct it to £69,210 at the most? Those numbers share the same ballpark ? Not a heinous error surely?

I think you may have been a little harsh to jump in with both feet if that is the paragraph you are trying to debunk with talk of Teresa Hunter being the scammer. I don't know Teresa Hunter, but I did think hers was a useful piece. I can't understand why it has got you of all people so irritated?

And just to add, or emphasise, a further dimension, I am not at all sure that previously contracted out private sector DB pension schemes, whether in the care of PPF or not, are going to be honouring the GMP revaluations in retirement after the government stop funding them as has been announced.

I am a member of a scheme where within the transfer values recently given there is now a major deduction which they call "GMP Savings" which knocks a quarter off the transfer value, where in previous years there has been no such reduction.

What is going on out there in the backrooms, please ?

greenglide

Are you now saying this is wrong?

No - I am not.

You appear to have enough qualifying years to get 100% of the current basic pension and you appear to have in excess of £59.14 which will take you easily over the nSP maximum which will be paid as the "Protected Payment".

While the forecast amount "may" be adjusted slightly for the AP / GMP / COD differences this wouldnt be much and would be cost in stone from 6/4/2016 (in practice slightly later for most people) waiting for 2015 / 16 earnings data.

coyrls

greenglide wrote: »

No - I am not.

You appear to have enough qualifying years to get 100% of the current basic pension and you appear to have in excess of £59.14 which will take you easily over the nSP maximum which will be paid as the "Protected Payment".

While the forecast amount "may" be adjusted slightly for the AP / GMP / COD differences this wouldnt be much and would be cost in stone from 6/4/2016 (in practice slightly later for most people) waiting for 2015 / 16 earnings data.

Great thanks, I was confused by Jamesd's post where he said:

Coyrls, given that you were contracted out between 1989 and 2000 most of that is in the period where a contracted out deduction based on GMP rules will be used. For the period from 1997 to 2000 your record should already be right and not include any additional state pension. My guess is that the COD for the years 1989-1996 will eliminate much of your ASP entitlement under the old rules, including much of it for the years contracted in.

greenglide

Yes - up to 1997 the AP was "supposed" to be offset by the COD but the amounts were not always exactly the same which could allow for a small amount of "payable AP" where the total COD was less than the AP. If the COD was greater than the AP the AP had to grow until it was greater than the COD before it became payable.

This generally happened when the pension was in payment but for anyone with an SPa after 5/4/2016 all this is swept away and replaced by the Starting Amount at 6/4/2016 which is cast in stone except for annual uprating, there is no additional AP / COD / GMP to worry about.

jamesd

coyrls wrote: »

As you mention in your edit comments, you scored out your original reply when you realised I was talking about defined contributions. Are you now saying that my forecast will not be accurate?

I'm afraid so. The problem is that the contracted out deduction doesn't just deduct from the contracted out years, it can also deduct from contracted in years. I didn't appreciate that sufficiently when I wrote the earlier replies.

The statement is correctly telling you what you've accrued, but not telling you how much will be deducted.

coyrls wrote: »

As mentioned in a previous post, the advice at the time was to contract back in at a certain age. In my case, I was contracted back in in 2000 when I joined an employer with a contracted in scheme (from an employer with a contracted out scheme), it seems that I should have contracted out to a personal pension, as the 15 additional years contracted in appear to have delivered no benefit to me, if your second view is correct.

I think you're right about contracting out. I'm not sure how much of the additional state pension for the contracted in years you will lose to the contracted out deduction. Much of it but I don't know how much. Until the pensions people calculate your GMP for the foundation amount calculation I don't think it's really practical to try to estimate it. Greenglide's "not much" and my "much" could be right.

The basic state pension part won't be touched, though.

jamesd

agarnett wrote: »

Jamesd, are you feeling yourself ? Your tone seems to have become one of irritation and that is unlike you. Has your username been hijacked :eek:

I'm just disagreeing with you and her. It'll happen from time to time.

agarnett wrote: »

In her example, Ms Hunter was talking about just one year contracted out in such a scheme

She didn't write just one year contracted in, she wrote about the first year. She didn't say how long she was in it. Of course that firm may have gone bust well before the PPF so she might not get the full protection we're used to these days. Assuming she's a journalist, she might somehow be a Maxwell victim.

agarnett wrote: »

I am sure you have a point with the annuity rate part, but surely you aren't saying she deliberately overstated the annuity purchase amount at £75,000? Didn't you yourself correct it to £69,210 at the most? Those numbers share the same ballpark ? Not a heinous error surely?

Unfortunately that £69,210 is also inflated by the issues mentioned later which appear to reduce the actual cost to something around £8,000. Though of course since she was never entitled to the full flat rate anyway all this talk of cost to get there isn't a loss for her, it's just how she can get there.

agarnett wrote: »

I think you may have been a little harsh to jump in with both feet if that is the paragraph you are trying to debunk with talk of Teresa Hunter being the scammer. I don't know Teresa Hunter, but I did think hers was a useful piece. I can't understand why it has got you of all people so irritated?

Partly that she's mixing useful factual comments about the flat rate with an example about herself that I think is misleading and overstates how much shortfall she'll have from what she was never entitled to in the first place. Though the word scam is really from Bootsox and absent a direct reply to that I'd have picked a less emotive word. I don't think that she's actually scamming anyone, just misleading and possibly even without realising it.