Contracted Out-Help

ger2000

Folks, I am in receipt of a armed forces pension just now having been in the forces since 16 years of age.I am currently a member of the police and have only a few years left.

I understand that both pensions are contracted out. What effect will this have on my state pension, ie significant reduction due to being contracted out?

Any advice appreciated.

LHW99

Have you got a state pension forecast?

That will be calculated on the higher of the "old" and "new" rules. For the years you have left going foreward you will build up extra SP until retirement.

ger2000

LHW99 wrote: »

Have you got a state pension forecast?

That will be calculated on the higher of the "old" and "new" rules. For the years you have left going foreward you will build up extra SP until retirement.

I have not had a forecast yet, but assumed that having been always contracted out the forecast would not be good reading! any thoughts welcomed. Thanks

p00hsticks

Following on from LHW99's post, yo ucan get a state pension forecast here

https://www.gov.uk/check-state-pension

Your figure will be less under both old and new rules due to you having been contracted out (but this is only fair as you wil lhave paid less NI than someone contracted in, and should have an additional private pension in return).

Under the old rules, you will not have accumulated the additional SERPS/S2P that someone contracted in would have.

Under the new rules, the notion of contracting in and out has disappeared - but the transitional calculations see a deduction made for 'contracted out' years earned prior to 2016 to allow for the fact that those contracted out paid a lower rate of NI than those contracted in.

As LHW99 says, DWP will work out the figure for you under both old and new rules as at 6/4/16, and the higher of the two amounts becomes your 'starting amount' going forward.

If this amount is less than the current maximum (currently £155.65) , any additional years earnt going forward until you reach state pension age will boost your pension until you reach the maximum amount allowed.

ger2000

p00hsticks wrote: »

Following on from LHW99's post, yo ucan get a state pension forecast here

https://www.gov.uk/check-state-pension

Your figure will be less under both old and new rules due to you having been contracted out (but this is only fair as you wil lhave paid less NI than someone contracted in, and should have an additional private pension in return).

Under the old rules, you will not have accumulated the additional SERPS/S2P that someone contracted in would have.

Under the new rules, the notion of contracting in and out has disappeared - but the transitional calculations see a deduction made for 'contracted out' years earned prior to 2016 to allow for the fact that those contracted out paid a lower rate of NI than those contracted in.

As LHW99 says, DWP will work out the figure for you under both old and new rules as at 6/4/16, and the higher of the two amounts becomes your 'starting amount' going forward.

If this amount is less than the current maximum (currently £155.65) , any additional years earnt going forward until you reach state pension age will boost your pension until you reach the maximum amount allowed.

Thanks very much, I will ask for a forecast and see where it stands. I agree it is only fair that I receive less having paid less NI contributions. No complaints.

p00hsticks

ger2000 wrote: »

I have not had a forecast yet, but assumed that having been always contracted out the forecast would not be good reading! any thoughts welcomed. Thanks

It very much depends on how many NI years you have under your belt and how many working years you have to go before reaching state pension age. You are guaranteed not to be any worse off than you would have been under the previous rules, and you may well find that that contracting out works in your favour gives you two bites of the cherry.

If you have 30+ NI years up to 2016, then under the old rules you would be entitled to the old basic rate pension amount of £119.35. If you've been contracted out for any length of time, this is likely to be a higher figure than what you woudl get under the new rules, so your starting amount would be at least £119.35.

Gonig forward, any NI years you now add (either via working, by paying voluntary contributions or by getting NI credits vial benefits etc) will increase your starting amount by 1/35th of the maximum £155.65 until that maximum is reached. So every extra years currently potentially increases your weekly amount by around £4.45.

THat means you could end up with a considerably higher state pension than you would have expected under the old rules, and with a private pension on top.

ger2000

p00hsticks wrote: »

It very much depends on how many NI years you have under your belt and how many working years you have to go before reaching state pension age. You are guaranteed not to be any worse off than you would have been under the previous rules, and you may well find that that contracting out works in your favour gives you two bites of the cherry.

If you have 30+ NI years up to 2016, then under the old rules you would be entitled to the old basic rate pension amount of £119.35. If you've been contracted out for any length of time, this is likely to be a higher figure than what you woudl get under the new rules, so your starting amount would be at least £119.35.

Gonig forward, any NI years you now add (either via working, by paying voluntary contributions or by getting NI credits vial benefits etc) will increase your starting amount by 1/35th of the maximum £155.65 until that maximum is reached. So every extra years currently potentially increases your weekly amount by around £4.45.

THat means you could end up with a considerably higher state pension than you would have expected under the old rules, and with a private pension on top.

Thanks you, I have in excess of 35 years NI payments, all of them contracted out. I hope to be working for the foreseeable, so I shouldn't be too far away from the maximum amount.

xylophone

https://forums.moneysavingexpert.com/discussion/5486938

See post 2.

bigfreddiel

LHW99 wrote: »

Have you got a state pension forecast?

That will be calculated on the higher of the "old" and "new" rules. For the years you have left going foreward you will build up extra SP until retirement.

You may be able to build up more sp if you continue working. How many years have you been paying NI?

In my case I'm due to get £150/week, £5 short of the maximum. I have 42 yrs NI contributions and my forecast says I cannot increase my sp. Now this may be because I reach sp age in two weeks so I will no longer be paying any NI so no increase in sp.

You can defer it but that only gives you a 5% increase, it was 10% pre new sp.

Cheers fj