Contracted out deductions from state pension

Bluefox_2

My wife and I have both reached the state retirement age this year. I have been receiving my state pension for 6 months and my wife has just received a letter from DWP stating what her pension will be. We both spent a lot of our careers in the public sector and were thus contracted out during those periods. In my wife's case she was employed in the public sector from 1972 to 1999 and then from 2000 to 2013 she was self-employed. She has not worked and paid no NI contributions since 2013. I was employed and contracted out from 1978 to 2013 and from 2013 to 2018 I have worked for a small company where I was not contracted out and made contributions into a workplace pension scheme.

Based on the employment records, I would have assumed that either our state pensions would be very similar or that my wife's would be higher due to having been contracted out for fewer years. In fact, my state pension is around £15 per week higher than my wife's, which puzzles me. Can anyone explain why this should be the case? Is it because my wife was self-employed for 13 years, whereas I was always an employee? She earned enough to make a full NI contribution during her period of self employment.

dunstonh

In my wife's case she was employed in the public sector from 1972 to 1999 and then from 2000 to 2013 she was self-employed.

She has done well out of the changes then.

Based on the employment records, I would have assumed that either our state pensions would be very similar or that my wife's would be higher due to having been contracted out for fewer years.

Whilst your wife was self employed, she could not be contracted out as she didnt pay class 1 NI. However, under the old state pension, she would have only received the basic qualification in those years. Under the new state pension, the self employed were big winners as those class 2/4 NI years are deemed as contracted in.

xylophone

It is possible that part of the answer lies in the fact that despite
being contracted out, as part of your career was post 2002, you may have earned some S2P during that period and also post 2013 when you were not contracted out.

https://en.wikipedia.org/wiki/State_Second_Pension

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

Bluefox_2

Thanks for those replies. It seems that the discrepancy between the pensions is mainly due to my wife being self employed after leaving her public sector job, whereas I had 5 years when I was contracted in.
I was assuming that there would be a relatively simple formula for calculating what our state pensions should be under the new system but it is way more complicated than I realised.

molerat

Having a pre 2016 forecast makes the whole thing much easier to understand but the actual calculations to get there are more like what you see on the blackboard in a sci-fi film

mgdavid

Bluefox wrote: »

............
I was assuming that there would be a relatively simple formula for calculating what our state pensions should be under the new system but it is way more complicated than I realised.

but you're not under the new system, you're under transition rules with most of your SP under the old rules and only a few years under the new rules. There are many threads on here (do a forum search) which go into great detail about the Starting amount at the changeover date, and the build-up after that.