Contracted out

Jojomissy

I am trying to help my partner look at pension options now he is reaching age 55.
He has worked in local government since late teens but had a 2 year break working elsewhere in between.
Unfortunately he now has 2 pensions as nobody told him he could combine them when he contacted them when rejoining in 2008. He receives 2 pension statements every year.

I have looked at his state pension and he is 2 years from full £175 pw state pension. It then states he was contracted out which was worth £52 pw but he is adamant he did not contract out. Was this standard with local government pensions and he would not be aware. Also is this included already in his pension forecasts from the statements he receives every year.

His ex wife contracted out but was advised to go to legal and general which it turns out was poor advice and she received a payout to put her back in the correct position. 

I am in ill health so we are looking whether early retirement is feasible.
Many thanks in advance

molerat

LGPS is a contracted out pension scheme, he would have been contracted out by default and would have had no choice.  He is in the fortunate position of being able to make up his state pension with post 2016 contributions, something he would not have been able to do under the old scheme.

The COPE amount shown on the state pension forecast is of no relevance as it was only used to calculate the 2016 starting amount, it will not be deducted from his state pension - what you see on the forecast is what you get - and the equivalent amount (in theory) will be included in his LGPS pension although not separately itemised.

Jojomissy

Thank you, that makes sense. I wasn't aware they contracted out by default. Is the maximum state pension £175 whether he had local government pension or not?
Also do you know whether the 2 year break and now 2 different pensions will have harmed him financially much? He spoke to them when he rejoined and they said it wasn't possible to combine them but a number of years later an advisor asked him why he didn't combine them and now it was too late.

Thanks again

molerat

There are others that can comment on the LGPS situation, @Silvertabby ,   but yes, the £175.20 is available to all.  The "damage" was done to his starting amount at 2016 but is in the fortunate position to make it up post 2016.

clive0510

so if I'm  contracted out of serps, sorry was contracted out of serps for several years, back in now, does that detract from the number of years I paid in? therefor meaning need to make those years up before I can get state pension? 

molerat

clive0510 said:

so if I'm  contracted out of serps, sorry was contracted out of serps for several years, back in now, does that detract from the number of years I paid in? therefor meaning need to make those years up before I can get state pension? 

Your starting amount at 2016 was calculated on the higher of the old or new scheme amounts, the latter having the COPE amount deducted.  There is no "making up years" as such, just making up an amount. Someone contracted in paying full NI with no work pension could have had the full amount at April 2016 so post 2016 NI payments would add nothing to their pension.  You, being contracted out into another pension, would be paying less NI and have the benefit of a works pension, or a separate NI rebate funded pension, but a smaller state pension.  You can now top up that lower state pension post 2016 meaning you paid less NI but end up with more overall than the person paying more NI.

Linton

clive0510 said:

so if I'm  contracted out of serps, sorry was contracted out of serps for several years, back in now, does that detract from the number of years I paid in? therefor meaning need to make those years up before I can get state pension? 

SERP/S2P/ASP (it had several names over the years) ended when the new pension scheme came in so you cant be contracted in/out now.

Contracting out doesnt change the years, it corresponds to a loss of £s.  In fact as someone with time in both the old and new schemes the number of years you have is irrelevent.  All that matters is the pension accrued in £s.  You get more £s by paying for more years up to the point when you reach the standard rate.  There is no limit on the actual number of years it takes.

Silvertabby

Jojomissy said:

I am trying to help my partner look at pension options now he is reaching age 55.
He has worked in local government since late teens but had a 2 year break working elsewhere in between.
Unfortunately he now has 2 pensions as nobody told him he could combine them when he contacted them when rejoining in 2008. He receives 2 pension statements every year.

I have looked at his state pension and he is 2 years from full £175 pw state pension. It then states he was contracted out which was worth £52 pw but he is adamant he did not contract out. Was this standard with local government pensions and he would not be aware. Also is this included already in his pension forecasts from the statements he receives every year.

His ex wife contracted out but was advised to go to legal and general which it turns out was poor advice and she received a payout to put her back in the correct position. 

I am in ill health so we are looking whether early retirement is feasible.
Many thanks in advance

Combining the 2 LGPS pensions may not necessarily have been the right thing to do, especially if he returned on a similar salary to his old job.

As things stand, his first pension will be due payment from age 60 with no reduction for early payment.  If he takes this from age 55, then the early payment reduction will only be for 5 years (22%) whereas the reductions in respect of his new post will be a lot more.  

Yes, if the records had been combined, then he would have kept his R 85 protections in respect of his pre 2008 service, but by being deferred separately, the value of old record has increased each year in line with RPI/CPI.  Since 2006, this will have given a higher increase than the many years of 1% pay increases levied on the public sector.

All public sector pensions were automatically contracted out of SERPS/SP2.  He hasn't lost out - as Molerat says, it's in his LGPS pension, just not shown on the statements.

If you can post his salary (and hours if part time) as at his date of leaving in 2006 (will be shown on his benefit statements as final pensionable pay) then I'll uprate it so you can compare it with his current salary.  

clive0510

Linton said:

clive0510 said:

so if I'm  contracted out of serps, sorry was contracted out of serps for several years, back in now, does that detract from the number of years I paid in? therefor meaning need to make those years up before I can get state pension? 

SERP/S2P/ASP (it had several names over the years) ended when the new pension scheme came in so you cant be contracted in/out now.

Contracting out doesnt change the years, it corresponds to a loss of £s.  In fact as someone with time in both the old and new schemes the number of years you have is irrelevent.  All that matters is the pension accrued in £s.  You get more £s by paying for more years up to the point when you reach the standard rate.  There is no limit on the actual number of years it takes.

Linton said:

clive0510 said:

so if I'm  contracted out of serps, sorry was contracted out of serps for several years, back in now, does that detract from the number of years I paid in? therefor meaning need to make those years up before I can get state pension? 

SERP/S2P/ASP (it had several names over the years) ended when the new pension scheme came in so you cant be contracted in/out now.

Contracting out doesnt change the years, it corresponds to a loss of £s.  In fact as someone with time in both the old and new schemes the number of years you have is irrelevent.  All that matters is the pension accrued in £s.  You get more £s by paying for more years up to the point when you reach the standard rate.  There is no limit on the actual number of years it takes.

Ok thanks for. I just don't want to get to 67 and be told, sorry you haven't paid in enough contributions to get your state pension, after having worked all my life.

Jojomissy

Silvertabby said:

Jojomissy said:

I am trying to help my partner look at pension options now he is reaching age 55.
He has worked in local government since late teens but had a 2 year break working elsewhere in between.
Unfortunately he now has 2 pensions as nobody told him he could combine them when he contacted them when rejoining in 2008. He receives 2 pension statements every year.

I have looked at his state pension and he is 2 years from full £175 pw state pension. It then states he was contracted out which was worth £52 pw but he is adamant he did not contract out. Was this standard with local government pensions and he would not be aware. Also is this included already in his pension forecasts from the statements he receives every year.

His ex wife contracted out but was advised to go to legal and general which it turns out was poor advice and she received a payout to put her back in the correct position. 

I am in ill health so we are looking whether early retirement is feasible.
Many thanks in advance

Combining the 2 LGPS pensions may not necessarily have been the right thing to do, especially if he returned on a similar salary to his old job.

As things stand, his first pension will be due payment from age 60 with no reduction for early payment.  If he takes this from age 55, then the early payment reduction will only be for 5 years (22%) whereas the reductions in respect of his new post will be a lot more.  

Yes, if the records had been combined, then he would have kept his R 85 protections in respect of his pre 2008 service, but by being deferred separately, the value of old record has increased each year in line with RPI/CPI.  Since 2006, this will have given a higher increase than the many years of 1% pay increases levied on the public sector.

All public sector pensions were automatically contracted out of SERPS/SP2.  He hasn't lost out - as Molerat says, it's in his LGPS pension, just not shown on the statements.

If you can post his salary (and hours if part time) as at his date of leaving in 2006 (will be shown on his benefit statements as final pensionable pay) then I'll uprate it so you can compare it with his current salary.  

He left at the end of 2005, original pay is showing as £23,725.

His current salary is around £46,000 and he rejoined in 2008 so approx 2.5 years gap.

He is 55 next year and due to my ill health we would like to move home for an easier pace of life. It looks like they will be asking for voluntary redundancies next year which are currently enhanced but unsure whether his role will be included.

Many thanks for all your help.

He has always worked full time hours.

molerat

clive0510 said:

Ok thanks for. I just don't want to get to 67 and be told, sorry you haven't paid in enough contributions to get your state pension, after having worked all my life.

Have you had a pension forecast ? Never too early and you will know where you stand.