Contracted out calculation?

soft_toy

Hello.
I hope someone can clarify this for me.
I reach state retirement age this year and have 45 years of qualifying NICs, 19 of which I was contracted out.
I understand that achieving the full new state pension requires 35 years of full NI contributions but it is reduced for any contracted out years.
In my case 35 years can be achieved by using as many as 19 or as few as 9 contracted out years.
My question is:
Will my pension be calculated on the basis of 19 years contracted out plus 16 years not contracted out
OR
9 years contracted out and 26 years not contracted out.

My pension forecast shows a reduction for years contracted out but gives no indication as to how the figure is arrived at or how many years of contracting out are being applied.

Any help in clarifying this situation would be really appreciated.

xylophone

See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447195/new-state-pension--effect-of-being-contracted-out.pdf

The new state pension figure as at 6.4.16 is actually £155.65 and the old Basic State Pension £119.30.

soft_toy

Thanks for the reply xylophone.
Before I posted my question I had already read your replies to other posts and had previously visited the link you have provided.
Unfortunately I couldn't find anything that answered my question.
The reason I am asking is that my NI record is wrong and I can prove it should include another 3 years of full NI contributions.
I was trying to find out if adding these additional 3 years of full non contracted out NICs would mitigate the effect of my contracted out years.

SnowMan

The contracted-out deduction applies to all your 19 contracted-out years. So essentially it puts you in a roughly similar position to someone who had an identical history as you but had been contracted-in throughout.

Your contracted-in twin would have a higher state pension than you (because there would not be a contracted-out deduction for 19 years), but when you allow for your pension pot or pension benefit that that has resulted from your 19 years of redirected national insurance contributions (and allowing for possibly lower national insurance through being contracted-out), which your twin wouldn't have, that roughly evens things out.

If they based it on 9 years your twin would be worse off.

SnowMan

soft_toy wrote: »

Thanks for the reply xylophone.
Before I posted my question I had already read your replies to other posts and had previously visited the link you have provided.
Unfortunately I couldn't find anything that answered my question.
The reason I am asking is that my NI record is wrong and I can prove it should include another 3 years of full NI contributions.
I was trying to find out if adding these additional 3 years of full non contracted out NICs would mitigate the effect of my contracted out years.

Without knowing what has gone wrong precisely it is hard to say what the affect will be

Your state pension will have been calculated as the higher of the old rules and new rules calculations.

OLD RULES
Basic state pension (30/30 x 119.30) + additional state pension

NEW RULES
35/35 x 155.65 - contracted-out deduction


If your calculation is based on the old rules, and if they have made a mistake then it is possible that your 'additional state pension' is understated because for contracted-in years you should build up additional state pension (sort of) and so you may be missing 3 years of additional state pension.

If your calculation is based on the new rules (and the old rules calculation isn't close to biting) it shouldn't make any difference that they have missed 3 years.

But to repeat, hard to be precise though without knowing what has gone wrong.

soft_toy

Thanks Snowman
I really appreciate your reply.
Do you have any advice at this stage?

SnowMan

soft_toy wrote: »

Thanks Snowman
I really appreciate your reply.
Do you have any advice at this stage?

Firstly if you tell us your state pension amount, and if they quote it the figure for COPE, we can work out whether your calculation is based on the old or new rules (or send you back to the DWP to get more info).

Secondly you can query your contribution record with the DWP/HMRC. What precisely do you think they have got wrong, and what evidence have you got that they have got it wrong?

I'm assuming you already have got a summary record of your national insurance contributions by year (either from the online system or through a paper request).

soft_toy

Hi again Snowman and thanks.
My pension forecast amount is £139.24
The COPE amount is £86.82.

I have a letter from Jobcentre Plus HQ office stating that NIC credits had been awarded for the years that are shown as missing on my NIC record.
Obviously I don't want the hassle of pursuing this if it is a pointless exercise.

xylophone

https://forums.moneysavingexpert.com/discussion/comment/70555532#Comment_70555532

Is your current state pension forecast £142.19 (to include 2015 -16)?

xylophone

Have you seen this? https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/512799/your-state-pension-statement-explained-dwp042.pdf

SnowMan

soft_toy wrote: »

Hi again Snowman and thanks.
My pension forecast amount is £139.24
The COPE amount is £86.82.

I have a letter from Jobcentre Plus HQ office stating that NIC credits had been awarded for the years that are shown as missing on my NIC record.
Obviously I don't want the hassle of pursuing this if it is a pointless exercise.

Your state pension has been calculated as

OLD RULES
= 30/30 x 119.30 (basic state pension) + 19.94 (additional state pension)
= 119.30 + 19.94
= 139.24

NEW RULES
= 35/35 x 155.65 - 86.82
= 155.65 - 86.62
= 68.83

So old rules calculation is higher and applies.

So missing 3 years could have an affect.

From memory under s2P (state second pension) that came in from 6th April 2002 credited years usually counted towards some additional state pension (as well as giving you a qualifying year for basic state pension purposes).

Prior to 6th April 2002 credited years would only have counted towards basic state pension and not additional state pension.

So on the surface it might be depend on whether any of the credited years are after 2002.

The safest thing would be to send HMRC a copy of your letter showing the credited contributions.

The extra years can in any case have some affect on some things such as bereavement benefits.