Contracted out years joke

Hadden01

I have been speaking to a specialist at the DWP and discovered the following which may be of interest to some.

Someone with 35 years 'contracted in' NI only will receive the full new flat rate pension
Someone with 35 years 'contracted in' plus extra years 'not contracted in' will received a reduced amount

This seems ridiculous

molerat

Discussed to death elsewhere on this forum. What about the transitional arrangements where you will get exactly what you would have got under the old system ? Those contracted out will have used the CO NI rebates to purchase another pension and could be considerably better off but then half a story makes a better headline.

HappyHarry

I have been speaking to a specialist at the DWP and discovered the following which may be of interest to some.

Someone with 35 years 'contracted in' NI only will receive the full new flat rate pension
Someone with 35 years 'contracted in' plus extra years 'not contracted in' will received a reduced amount

This seems ridiculous

Or rather;

Someone with 35 years 'contracted in' NI only will receive the full new flat rate pension
Someone with 35 years 'contracted in' plus extra years 'not contracted in' will received a reduced amount plus their contrated-out benefits held in a separate pension plan plus, potentially, their employer contributions, again in a separate pension plan. This will overall make them far better off than someone who never had the ability to have the option of a plan where they could contract out.

This seems ridiculous

It's all down to people living longer. The alternative is culling, which would probably be even less popular.

Hadden01

Anyone who has accumulated contracted in years and then moves to contracted out has not got there pension frozen - every extra year they work paying NI reduces their state pension

HappyHarry

Anyone who has accumulated contracted in years and then moves to contracted out has not got there pension frozen - every extra year they work paying NI reduces their state pension

Maybe that's one of the reasons that you can no longer contract out.

hyubh

HappyHarry wrote: »

Maybe that's one of the reasons that you can no longer contract out.

Contracting out is only ending for DB schemes next year.

HappyHarry

Contracting out is only ending for DB schemes next year.

Fair point. Well made.

The benefits of those schemes will still vastly outweigh any decrease in the new 'flat-rate' state pensions.

hyubh

Hadden01 wrote: »

Someone with 35 years 'contracted in' NI only will receive the full new flat rate pension
Someone with 35 years 'contracted in' plus extra years 'not contracted in' will received a reduced amount

This seems ridiculous

To be fair, it's not the new state pension arrangements doing that - it's the old ones. The new arrangements are actually enabling a significant group of people (namely, those with contracted out periods but also a number of years left to their state pension age) to limit or even remove this effect.

greenglide

Maybe that's one of the reasons that you can no longer contract out.

The reason for removing the ability to contract out is simply because the new State Pension ends the old earnings related part of the present system. With nothing to contract out of the concept of contracting out becomes redundant.

For several years now you have only been able to contract out if you were in a DB pension scheme. These people will now pay full rate NI (losing the contracted out rebate) and the employer will also pay full rate NI as they lose their rebate as well which is higher. The pension schemes will be allowed to increase the employees pension contributions without the agreement of the employees (a "permissive override") to recover the extra NI that they will be paying "through no fault of their own".

There hasnt been much debate about this so far?

Hadden01

It's not possible to remove this effect - all contracted out years are included in the calculation no matter how many contracted in years you might accrue in the future

hyubh

Hadden01 wrote: »

It's not possible to remove this effect - all contracted out years are included in the calculation no matter how many contracted in years you might accrue in the future

On the introduction of the single tier pension in 2016 everyone under SPA will get a 'foundation amount', which in principle is the higher of their state pension accrued to date under pre-single tier rules and their state pension accrued to date as if single tier rules had always been in effect. After that point future accrual works the same regardless of whether the individual had a contracted-out deduction under the old system or not.