State pension

PATRICIAMARY_2

 I have an LGPS pension and was told this is why my state pension was reduced even though I have full NI contributions. I didn't query this in 2020 when I claimed my pension (I had deferred for over a year to increase the state pension) - was the information I received correct or have I been underpaid on my state pension.  I am now 67 - I was eligible for my state pension May 2019 and I took my LGPS September 2019.

Dazed_and_C0nfused

Why do you think your State Pension had been reduced?

A lot of people who were in DB pensions were winners under the new system, having paid reduced National Insurance for many years and then getting the opportunity to add more to their pension by contributing after April 2016.

The basic State Pension in May 2019 was £129.20/week - what was your new State Pension amount at that point (pre deferral)?

OldBeanz

I have a DB pension and 49 years of contributions but do not max out either but the amount is a lot more than someone retiring in 2016. As Dazed says, it is due to the lower national insurance paid before 2016.

PATRICIAMARY_2

 I always paid full contributions (over 45 years worth!) - I was in the LGPS for 22years the rest of the time I worked in the private sector.  The forecast for my pension prior to claiming it was always the full single tier pension but when it came through it has been reduced by over 20 pounds so that's why I carried on working.

p00hsticks

If by 'reduced', you mean that you got less that the maximum new State Pension amount (currently £175.20 a week), (but at least as much as the basic old amount of £129.20) then yes, it's right, for the reasons Dazed and Old Beanz have indicated

hyubh

PATRICIAMARY_2 said:

 I have an LGPS pension and was told this is why my state pension was reduced even though I have full NI contributions. I didn't query this in 2020 when I claimed my pension (I had deferred for over a year to increase the state pension) - was the information I received correct or have I been underpaid on my state pension.  I am now 67 - I was eligible for my state pension May 2019 and I took my LGPS September 2019.

The old state pension was in two parts, basic and additional. Because you were a member of a 'contracted-out' occupational scheme, the larger part of the additional state pension is effectively part of your scheme pension, for which both you and your employer paid a reduced rate of National Insurance.

The new state pension got rid of the basic/additional distinction, and ended contracting out. For those who never will have the benefit of a good occupational scheme, this was bad news - the new maximum 'single tier' is less than the old maximum basic+additional - but luckily these are mostly younger people who haven't cottoned onto the fact. However, as a transitional measure, anyone in 2016 who would have only earned basic state pension and maybe a bit of additional under the old system due to contracting out now accrued new state pension going forward on the same basis as someone who hadn't.

This was pretty unfair - while someone who had already accrued a state pension above the new single tier level had that pension protected, someone who had never been contracted out, had not yet reached the new single tier level, but was on track for a basic+additional under the old system higher than the new maximum, now lost the right to reach the higher amount. However, you were one of the winners, if only in a small way, because you had a few years to add (in effect) additional state pension that you wouldn't have been able to get before. In addition, if you were a member of the LGPS before April 1997 and so accrued a 'GMP', the old interlinking between the state pension and GMP was broken, meaning the GMP is treated as ordinary scheme pension with full increases due (this wouldn't be the case had you reached state pension age under the old system). 

PATRICIAMARY_2

I was in the LGPS from 1998 onwards (I had a couple of small pensions that I transferred to give me an extra year): prior to that I paid full contributions with no opt out. Does that explain why I did not receive the full single tier amount?

hyubh

PATRICIAMARY_2 said:

I was in the LGPS from 1998 onwards (I had a couple of small pensions that I transferred to give me an extra year): prior to that I paid full contributions with no opt out. Does that explain why I did not receive the full single tier amount?

Yes, the single tier amount represents the combination of the old basic and additional state pension. If you had reached state pension age under the old system, your state pension would have been less. So you haven't lost out, you've gained.

PS - when contracting out with an occupational scheme, it's the scheme that chose to contract out, not the individual member (between 1988 and 2012 it was also possible to contract out privately). Also the term really is 'contracting out', 'opting out' means something different to a pensions geek.

PATRICIAMARY_2

 I wasn't aware that I had been contracted out just because I worked for local government - I take it that happened automatically.  Thanks for the info.

Silvertabby

PATRICIAMARY_2 said:

 I wasn't aware that I had been contracted out just because I worked for local government - I take it that happened automatically.  Thanks for the info.

All public sector pension schemes were contracted out.  To be fair, this and so much more information has always been readily available in scheme booklets etc.

xylophone

The forecast for my pension prior to claiming it was always the full single tier pension but when it came through it has been reduced by over 20 pounds so that's why I carried on working.

I wonder do you still have the forecast and if so can you quote exactly what it says?

Was a COPE shown?

You say that you have 45 full years therefore at 6/4/16 you had at least 35 years.

Two calculations were done and your Starting Amount  for NSP was the higher of the two.

Old Rules

Full Basic of £119.30  (because you had at least 30 years) + (Additional State Pension - Deduction for Contracting Out).

New Rules

Full NSP of £155.65 (because you had at least 35 years) - Contracted Out Pension Equivalent (COPE).

You were under state pension age at 6/4/16 - if your starting amount (calculated as above) was under £155.65, you were able to improve your pension by contributions or credits up to the last full year before reaching SPA.