Deferring state pension

Noyem

jamesd wrote: »

Contracting out has no effect at all on the basic state pension level. It is impossible to contract out of that unless you were a married woman paying the reduced stamp level. The only part you could contract out of was the earnings-related portion, SERPS then later S2P.

Alas you are wrong there jamesd. Contracting out was a system where employees gave up their right to additional state pension, firstly in the form or the state earnings related pension scheme (Serps) then from 2002 in the form of the state second pension (S2P)
In return workers and their employers paid reduced national insurance. Many have been shocked to find their pension has been reduced for years that they were contracted out. My own SP statement reflects just this. I expect there is a confirming article that displays this on Martin's site but I can't find it but did find some when I did a search.

coyrls

Noyem wrote: »

Alas you are wrong there jamesd. Contracting out was a system where employees gave up their right to additional state pension, firstly in the form or the state earnings related pension scheme (Serps) then from 2002 in the form of the state second pension (S2P)
In return workers and their employers paid reduced national insurance. Many have been shocked to find their pension has been reduced for years that they were contracted out. My own SP statement reflects just this. I expect there is a confirming article that displays this on Martin's site but I can't find it but did find some when I did a search.

He's not wrong, contracting out does not affect the basic state pension, it does, as you say affect Serps and S2P.

jamesd

Noyem wrote: »

Contracting out was a system where employees gave up their right to additional state pension, firstly in the form or the state earnings related pension scheme (Serps) then from 2002 in the form of the state second pension (S2P) ... In return workers and their employers paid reduced national insurance.

Yes, that's what it does: doesn't touch the basic state pension accrual (under old rules calculation) but doesn't accrue additional while contracted out, except there was some much reduced accumulation under S2P anyway.

Noyem

I am sorry - you are both wrong, according to data I have and am now finding out. Please do an online search for articles on the subject. My own State pension statement clearly states how their anticipated COPE figure has reduced the SP amount they will be paying me. I have, via my local MP had them verify this. They have referred to check with HMRC to verify my contracted out record. All this has taken 8 months as no-one will reply until you get an MP involved or write to a head of department. It is all quite a nightmare and planned so they kill you off an need pay out nothing. I repeat, because of my measly £27K private pension my 43 contributing years State Pension will pay next March circa £130 per week. My Nov 2015 statement said £123 so I'm building into that two further annual rises.

Noyem

Millions of people who boosted their workplace or private pension by ‘contracting out’ should be aware that their state pension entitlement, for periods spent contracted out, will see a deduction made from the state pension for each year you are contracted out.
It is said that one in four could be affected. The sooner everyone can get a statement to find out the better because if they are going to get the new flat rate they need to make better and more cautious decisions with there contracted out money pot.
It’s quite a double wammy as trying to gainback something from deffering the State Pension is a lot less valuable after the new flat rate state pension was introduced. The rate of gain in deferring dropped by half (from 10.4% to 5.8% per annum). In addition the taking a lump sum option was removed.
Many it seems enter deferring the State Pension believe that in addition to getting an enhanced rate pension, when they do decide to claim, that they get in addition all the pension they had not been taking. I have spoken to many who believe this. Only here has jamesd confirmed to me this is not the case. Good on him, I say.
Anyway as previously said, under the new deferring rules if you delayed taking your SP for say three years it would take you fourteen years before you shall addittional profit over taking your basic State Pension from your retirement date. I worked this based on a starting £130 per week SP rising by the usual 2.5% annually and by the deferred rate of 5.8% for the three years, i.e. 8.3% overall annual increase. Sorry to repeat so much but if you’re in my boat - you need to know all this.

JezR

Noyem wrote: »

I am sorry - you are both wrong, according to data I have and am now finding out. Please do an online search for articles on the subject. My own State pension statement clearly states how their anticipated COPE figure has reduced the SP amount they will be paying me.

It won't though have reduced it to less than the old basic pension would have been - as your own figures indicate.

jamesd

Noyem wrote: »

I am sorry - you are both wrong, according to data I have and am now finding out. Please do an online search for articles on the subject.

Please continue with your research, eventually you'll realise that we're both right. We've both been doing this for years and are way ahead of you on understanding how the pieces fit together.

Noyem wrote: »

My own State pension statement clearly states how their anticipated COPE figure has reduced the SP amount they will be paying me.

That's about the reduction in the combined basic and additional state pensions, it doesn't split out the lack of change in the basic state pension part from the reduced additional part even though all of the COPE is from the earnings-related part.

Noyem

From the Gov.com website... "Your State Pension when you contract out. Because you paid lower National Insurance contributions when you were contracted out, you might get less new State Pension than someone who didn’t contract out.If you reach State Pension age on or after 6 April 2016, you can get a statement including an estimate of the Additional State Pension you’d have got if you didn’t contract out. This amount appears as your ‘contracted out pension equivalent’ (COPE). If you’ve contracted out more than once, the amount will be the total."
And from a major newspapers website..."More than 9m people whose employers contracted their company pensions out of the state safety net will be poorer in retirement as a result - and, as the law stands, there is nothing most of them can do about it.
That holds true even if these schemes are not in deficit and are not wound-up, actuaries say. The simple reason is that rebates of National Insurance Contributions (NICs) paid back into these funds are about £1 billion a year too little to provide the retirement benefits these members would otherwise have received from the State Second Pension (S2P).

The S2P replaced the State Earnings Related Pension Scheme (Serps) last April and, as its old name made plain, payments of income in retirement are based on each individual's earnings and NICs record.

So Serps and now S2P provide many people in the private sector with their only access to a risk-free pension which is not vulnerable to stock market setbacks."

xylophone

You won't receive less state pension under the new scheme than you would have done under the old one.

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

The figures in the above are a little outdated - BSP 2016-17 £119.30 and NSP £155.65.


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

kidmugsy

The whole attraction of deferral is that it buys you an index-linked annuity. To calculate a payback time ignoring inflation is therefore the height of folly, unless your crystal ball assures you that there will be no inflation between now and the grave.