BT Pension S2P offset

xylophone

the entire state pension that will be taxed.

But if your total income from all sources takes you over your tax free allowance, you would expect to pay tax at the applicable rate? It is immaterial that the income is pension income.

Your state pension is income - it is not taxed at source but your tax code for your BT pension will reflect the fact that you are receiving the state pension when you start to receive it.

If your BT pension is over your personal allowance you will pay tax on it when you start to receive it.

Even were the state pension not changing to NSP, if you had a GMP, a Contracted Out Deduction would still have been applied to your state pension when you started to receive it.

xylophone

I don't know what to expect when I reach 65 in 2019. I left BT in 1992 after 22 years in the job.

You joined in 1970 so will be in Section A of the BTPS?

You can download a booklet here http://www.btpensions.net/147/section-a

You will have pre 88 GMP and post 88 GMP within the pension which you have been receiving since you were 60.

Under current arrangements, when you reach 60, that part of your pension equivalent to pre 88 GMP and that part equivalent to post 88 GMP are split out of your BT pension as they increase in payment in a different way from the "excess over GMP".

See post 33 https://forums.moneysavingexpert.com/discussion/4532605

The scheme does not pay inflation increases on pre 88 GMP and only up to 3% on post 88 GMP. These are paid through the state pension.

What happens is that the Additional State Pension you would have earned had you been contracted in is calculated and from it is deducted the GMP you are paid through the Scheme (the Contracted Out Deduction) - what is left in indexed through the state pension as appropriate (see above) and paid as additional state pension.

However contracting out will end with the NSP as will S2P and (for new state pensioners) the mechanism for the above inflation linked increases - how the pension schemes will cope with this has yet to be seen....

smjxm09

One question for the experts to mull over. New state pension £155.25
My contracted out pension £131.50 minus my £436 offset. Now I have heard that from April 2016 I can buy or work added years to get back to that £155.25 at around £4.36 per added year as I have enough time as I am 58.
As I left BT last December can they increase the offset making any lump sum payments or extra years worked worthless or is that offset now fixed as I have left the company?

chris_m

smjxm09 wrote: »

As I left BT last December can they increase the offset making any lump sum payments or extra years worked worthless or is that offset now fixed as I have left the company?

Check your letter from Accenture confirming all your pension arrangements - mine states that the offset will be increased in line with Average Weekly Earnings until SPA.

DaveMcG

smjxm09 wrote: »

One question for the experts to mull over. New state pension £155.25
My contracted out pension £131.50 minus my £436 offset. Now I have heard that from April 2016 I can buy or work added years to get back to that £155.25 at around £4.36 per added year as I have enough time as I am 58.
As I left BT last December can they increase the offset making any lump sum payments or extra years worked worthless or is that offset now fixed as I have left the company?

Forget about the £155 in relation to your BT pension, it is irrelevant.

You will get a foundation amount of presumably something around £131.50 on April 2016. So six years worked after that should get you the full £155.

If you work for less than six years you can make a voluntary contribution(s) for the missing year(s). They are good value at the present rate for anyone in reasonable health.

RickyB2000

Looked at a certain way you are doing quite well out of this. If you were contracted in the whole time you would get £436 less at 60, which may make early retirement that bit more difficult. You would have to wait until 66 (though it appears you would have got ~£1000 extra state pension, but nearly £500 extra at 60 is not to be sniffed at). On top of that, as I understand you have the option of working just enough to top up your NI record to get the full pension (which someone contracted in wouldn't have the option to do).

smjxm09

Check your letter from Accenture confirming all your pension arrangements - mine states that the offset will be increased in line with Average Weekly Earnings until SPA.

But to confirm that while the offset will increase with average earnings they won't touch added years that I have bought or worked after 2016?

madeinireland_2

xylophone wrote: »

The proposed reduction by BTPS would not occur until NSPA - as I read it, BTPS pays (and inflation links) the full pension until NSPA when it would apply the "offset" to account for the fact that a certain element (the post 2009 S2P) would be paid within the state pension - thus the pensioner's total pension does not decrease.

Let's take the example of a BT employee who will leave the job (after say forty years) and draw his pension at age 60 in 2017.

The DWP will provide the figure for his Foundation Amount at 6.4. 16.

This amount will take account of both his contracted in (post 2009) and contracted out years - therefore it could well be over the current basic state pension even after the contracted out deduction has been made - if below the rate of NSP, the employee will be able to increase the amount because he will work an extra year up to age 60.

He could also choose to make voluntary contributions to bring himself up to full NSP.

Until he draws his state pension, the BT pension will be paid in full by BTPS - once the state pension comes into payment, BTPS will decrease the pension by the "offset" because this amount will be being paid within the state pension.

However, the pensioner in question will have earned a GMP and this is where the situation becomes complicated.

At NSPA, the part of his BTP that relates to his GMP should be split out from the total.

As matters stand at the moment, the BTPS has no obligation to inflation link the pre 88 GMP or anything above 3% on the post 88 GMP.

The mechanism for inflation linking the GMP through the state pension will disappear with NSP.

It is conceivable therefore that the pensioner would find that after NSPA, a part of his BT pension will be non increasing/not fully inflation linked.

This might be obviated by the Scheme's continuing to fully inflation link the pension as it would have been doing up to NSPA.

Thanks xylophone - a great attempt at explaining it but I'm not sure I'm quite there yet.

I've just checked my pension statement and my offset at end of March 2015 is about £804. So I presume I lose that off my BT pension at state pension age? So that is about £15 per week. I got an estimated state pension using the online trial site that suggests £138 per week and I know I can increase that to the £155 by making further voluntary contributions as my state pension age is not until another 13 years or so. However when I do get to the £155 amount that will be the maximum I can get too - but my BT pension will still be reduced by. £15 a week meaning I don't ever effectively get the £155 in reality - is that correct?

I'm not complaining by the way as I know BT pensioners are generally well off as we have a final salary scheme - just seeking clarification that I have understood correctly and if there is anything I can do to improve the position.

Thanks...

RickyB2000

By opting out, your state pension was reduced by so much and your BT pension was increased by the same amount. However, when you opted back in again, for those years your state pension was increased but your BT pension was not decreased by the same amount. So as it stands you are getting free money (to the tune of £15 a week). Therefore BT reduce your pension by £15 a week and you are now even again (I.e. What you are entitled to).

Note the £15 makes up part of you £138, it has nothing to do with the £155. It could be the state reduces your state pension to £123 and your BT pension stays as is (it isn't). If you pay in extra years, you get to top up to £155, which may be the easiest money you ever make if you are still paying NI while working (the difference between £155 and £138 will be factored into your BT pension - assuming full NI record - so you have the opportunity to make more out of any future NI contributions over 35 years that will top you up to £155. Something someone who was opted in doesnt have the luxury of doing ).

Note, I am assuming your BT pension reflects the loss in state pension, there is not enough to confirm that either way.

madeinireland_2

RickyB2000 wrote: »

By opting out, your state pension was reduced by so much and your BT pension was increased by the same amount. However, when you opted back in again, for those years your state pension was increased but your BT pension was not decreased by the same amount. So as it stands you are getting free money (to the tune of £15 a week). Therefore BT reduce your pension by £15 a week and you are now even again (I.e. What you are entitled to).

Note the £15 makes up part of you £138, it has nothing to do with the £155. It could be the state reduces your state pension to £123 and your BT pension stays as is (it isn't). If you pay in extra years, you get to top up to £155, which may be the easiest money you ever make if you are still paying NI while working (the difference between £155 and £138 will be factored into your BT pension - assuming full NI record - so you have the opportunity to make more out of any future NI contributions over 35 years that will top you up to £155. Something someone who was opted in doesnt have the luxury of doing ).

Note, I am assuming your BT pension reflects the loss in state pension, there is not enough to confirm that either way.

Sorry Ricky but I'm lost on the very first line. How to you work out that my BT pension was increased when we were opted out. My pension is based on my final salary so how can you say that - I don't believe my salary was increased at the time I was opted out ???