State pension forecast and COPE

paulus6

Silvertabby wrote: »

Yes.

The (old rules) maximum State pension is something like £280 per week, ie £120 basic pension plus SERPS/SP2. Due to the provisional protections, someone who had already accrued more than the new single tier pension of £155 as at April 2016 will still receive that higher amount. However, and this is the crunch, even if that person is some years off State pension age and is carrying on working their State pension will be 'frozen' (apart from cost of living increases). So, yes, there will be many people out there who may have been expecting over £200 per week who will only get their 2016 foundation amount.

Contracting out ended in 2016, so everyone - paying into a private/occupational pension scheme or not - will eventually get £159 per week State pension in return for 35 years of full, non-contracted out, NI contributions.

The calculations on who the winners and losers must be so complex that its not worth worrying about. I think personally, I am savvy enough to spend my built up fund wisely, whereas a higher weekly amount via s2p may suit someone who prefers the reliability and longevity of the pension it provides. It is tempting to prefer the contracted in route, especially if you are healthy and will benefit from all those years of security, but there is no point crying over spilt milk.....thanks for the detailed reply.

dunstonh

It is tempting to prefer the contracted in route, especially if you are healthy and will benefit from all those years of security,

In 1996, the SIB did a review of everyone who had contracted out from the start (1988), and found no-one who contracted out was worse off at that stage.

in 1997 Labour started a period of reducing rebates (a stealth tax as most people wouldn't see the lower rebates and recognise it as a tax). So, contracting out became less favourable and it swung to being about 50/50 being best contracting out in monetary terms but was so minimal either way that it didnt really matter. Towards the end, Labour did start increasing the rebates again.

However, the main benefit of contracting out was always to get access to the money earlier. Contracted in could only get the income from state pension age, whatever that was. Contracted out could get it from age 60 (reduced to 55 from 2006 and the 25% TFC came with it.)

The 2006 changes and the 2015 changes along with the single state pension changes have been very good to those that contracted out via a money purchase scheme.

xylophone

Didn't understand a word of it

On 6/4/16, two calculations were done

NI years/30 +( Additional State Pension - Deduction for Contracting Out)

NI years/35 - COPE (Rebate Derived Amount).

Your Foundation Amount (Starting Amount) for NSP was the higher of the two.

If your starting amount was equal to a full NSP, then you could not increase it by further NI contributions, although if you were under SPA and earning over the LEL then you would still need to pay NI.

If your starting amount was under full NSP then there was the possibility of increasing it, depending on your personal circumstances - see

https://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf

If your starting amount was over full NSP then the amount over would be a "protected payment" - the relevance of this relates to how your State Pension increases in payment.

See https://www.gov.uk/new-state-pension/how-its-calculated

SwanseaVillan

So having just taken early retirement at 56 my forecast state pension for my contributions to date is about £130 per week. The COPE figure quoted on the the Govt website is £85 per week (which i assume forms part of my works pension - but how can i check ?). Does that mean i am £(130+80-159) better off than if i'd not contracted out ?

Many Thanks

molerat

Unless your contracted out NI saving was paid into a separate pension there is no way of checking. If not contracted out you would have earned S2P which could have brought your SP up to a maximum of £298.23 so not as clear cut as you suggest.

SwanseaVillan

But isn't SP MAX £159 ?

p00hsticks

SwanseaVillan wrote: »

But isn't SP MAX £159 ?

For those just starting their working lives, yes.

But if people had already accumulated more than that under the old rules at the time the new State Pension was introduced (from SERPs / S2P / being contracted in ) the transitional rules mean that that higher amount will be honoured.

They have just lost the opportunity to increase it any further ....

dunstonh

But isn't SP MAX £159 ?

It will be in time but at present, there are benefits that people have accrued under the old scheme that will take time to work their way out (e.g. graduated, SERPS and S2P).

The COPE figure quoted on the the Govt website is £85 per week (which i assume forms part of my works pension - but how can i check ?).

You would either be contracted out with a money purchase pension (so the rebates go into a pension fund and increase its value). Or you would be contracted out into a defined benefit scheme. This does not involve you getting any personal value added to your pension. You would have paid a lower NI rate and the defined benefit pensions would pay its defined benefits.

DB schemes dont need checking as there is nothing to check. DC schemes would have been paid annually into your pension and your statements would show the rebates being added. The pension may still be segmented showing "former protected rights" if you havent transferred it recently and are in an older scheme.

SwanseaVillan

Mine was a DB scheme. So i think you're saying the benefit i derived was from paying a lower NI rate, rather than an increase in pension benefits ? Is that correct ?

Thanks

dunstonh

Mine was a DB scheme. So i think you're saying the benefit i derived was from paying a lower NI rate, rather than an increase in pension benefits ? Is that correct ?

Yes. (with the scheme itself covering some of it within the defined benefits).

Bottom line is that you have nothing to check.