BT Pension S2P offset

smjxm09

BT contracted its staff out of the State Second Pension for a number of years but then contracted us back in, in 2009 when our final salary pension scheme was ended and replaced with average earnings.

Most older BT staff who took early retirement have taken or plan to take their BT pension at 60, which was the age the final salary pension ended. But someone who has read the following statement thinks that at state pension age BT will cut our pension.

State pension offset
As your service from 6 April 2009 is not contracted out of the State Second Pension (S2P), you will receive an S2P from the State for that period in addition to your BTPS pension. To make sure you do not receive this benefit twice, from State Pension Age your BTPS pension will be reduced by the S2P pension you would receive for that period.

So for me instead of the government quoted state pension of £155.25 I will get £131.50 due to contracted out years but I also have an S2P offset of £436 for the years I was contracted in.
Does this really mean that BT will knock off £436 per year from my BT pension when I get to 66 after I take my pension at 60 in 15 months time? If this is the case I have been hit for the contracted out years and hit again for the contracted in years so where is the benefit for me in having a partial S2P pension?

greenglide

Lots of pension schemes have a reduction supposed to offset the State Pension that would be paid. Those which have a normal retirement age before often apply this reduction, in whole or in part, from SPa.

In the case of the scheme I am in they deduct the NI lower earnings limit from the salary when calculating the pensionable salary but this would be the same no matter when the retirement age was.

What they will do when the Additional Pension from SERPS and S2P ends in 6/4/2016 along with the GMP / COD is anyones guess.

smjxm09

So what we are saying then is that my state pension is being reduced because I was contracted out for so many years. My BT pension is also going to be reduced because I was also contracted in for so many years and then in effect what is left of my combined pension will be taxed at 20% above the personal allowance. So much for being £151.25 better off as the government claims when the new state pension take effect from next year.

madeinireland_2

I must admit this is one area of the BT pension scheme I do not understand at all.

How did you arrive at the £436 by the way?

and how would this impact the lifetime limit?

robin61

Some information here.
http://www.btpensions.net/94/195

I have always found this to be a bit confusing but my State pension seems a long way off.

neilvw

robin61 wrote: »

Some information here.
http://www.btpensions.net/94/195

I have always found this to be a bit confusing but my State pension seems a long way off.

Copy and pasting for ease:

S2P - more detail

Ceasing contracted-out status made BTPS more sustainable and less expensive to run whilst providing virtually the same overall benefits to members. The Government became responsible, from 6 April 2009, for paying you an additional (S2P) pension and, therefore, the BTPS will no longer pay for this element of pension.

Members and BT have paid increased NI contributions from 6 April 2009 and members began to earn additional S2P pension paid by the State.The higher NI contributions are based on 1.4% of your Band Earnings (that is, your gross earnings between the limits set by the Government, currently for 2015/16, £5,824 and £42,385).

When payment of the S2P commences, an offset will be applied to the BTPS pension. This will be calculated so that members' total BTPS and S2P pensions in retirement will be, as near as practicable, the same in total before and after the change.

Your overall pension benefit would not be expected to change but would be provided from two sources.

In the event of a future change to S2P benefits where there is an impact on the way in which this arrangement operates, BT has agreed with the unions to review the arrangement with a view to neutralising the overall impact on members' benefits.

neilvw

I'm suspicious of the phrase "virtually the same overall benefits".

greenglide wrote: »

What they will do when the Additional Pension from SERPS and S2P ends in 6/4/2016 along with the GMP / COD is anyones guess.

Indeed. The BT link doesn't mention the fact that S2P will cease to exist for those reaching SPa after 5 April 2016 - how are they going to work it around the new system, and the fact that the OP will have a starting amount as at that date plus (potentially) about six years of new State Pension accrual?

They do say:

In the event of a future change to S2P benefits where there is an impact on the way in which this arrangement operates, BT has agreed with the unions to review the arrangement with a view to neutralising the overall impact on members' benefits.

I would check with the scheme?

neilvw

So when contracted-out, both BT and the OP paid reduced national insurance, which was used to subsidise the pension contributions both made.

From the time the scheme contracted back into S2P in 2009, BT and the OP paid normal rates of national insurance (as will happen with all currently contracted-out DB schemes from April 2016).

Can we assume that contributions by both BT and the OP would have been reduced in 2009, to account for the national insurance saving disappearing? Hence the benefits will be reduced commensurately at SPa, which would be relatively simple in the current State Pension system but will be hard to fathom under the new one.

Does that sound right?

smjxm09

I have no idea as pensions are a complete mystery to me but what I do know is that we were opted out automatically by BT. This was done to save BT money rather than to really benefit me. I think I paid 1.4% less in national insurance contributions for so many years which has cost me a disproportionate £24 per week.

I then start paying the higher NI rate for a higher state pension but BT has in effect decided that I will not get this higher state pension as they intend to cut my BT pension by a similar amount so actually my extra NI contributions count for nothing with all the benefits going to BT.

So what can I do about it? Is there a pensions ombudsman for unfair practice? Is this what the government expected to happen to the second state pension with the pension provider picking up the benefit of the S2P rather than its pensioners?

smjxm09

I must admit this is one area of the BT pension scheme I do not understand at all.

How did you arrive at the £436 by the way?

£436 appears on my annual pension statement. My ex-work mate has an offset of around £750 as I left before him.

Now I have read that I can buy extra state pension after April 2016 to boost my £131.50 contracted out state pension to £155.25 as I have enough years to my 66th birthday to do this. But that then raises the question if I did buy more state pension would BT then cut my company pension even more to compensate for the increase so I end up being again no better off?

This all strikes me as being legalised theft.

greenglide

But that then raises the question if I did buy more state pension would BT then cut my company pension even more to compensate for the increase so I end up being again no better off?

No - the BT offset is based on the contributions paid into their scheme and is a "notional" amount of what they see as the S2P that is earned rather than the actual SP paid.

This is clearly not theft or anything like that. They will be applying the rules of the scheme which you have accepted by paying money into it.

At any time you could, of course, have chosen to leave the pension scheme and presumably you would then be complaining because you didnt get the BT pension? BT will still pay substantial amounts of money into this scheme - these are not without cost the the employer.

The change to the rules of the scheme will have been agreed between BT and its employees (the trade unions) - complain to them.