Contracted out - Never Knew!!

Linton

SINDYGIRL said:

May I ask one last question so I'm right in my head...
Am I going to get a reduced pension because
 a) I was contracted out or because
 b) I retired in 2018 aged 59 thus not paying anymore NI contributions?
...or is it a combo of both?

Thankyou all in advance

Primarily because you were contracted-out but paying more NI after 2016 would have improved the situation.

You are one of the people who have gained from the post 2016 rules....

Under the old rules if you were contracted-in you would get extra pension under SERPs/S2P but if contracted-out you just got the "basic" SP.  There was no way to pay extra NI to provide you with a SERPs level of State Pension.

Under the new rules which increased the basic SP by incorporating SERPs/S2P into the standard SP you can pay extra voluntary NI at a remarkably low cost to increase your SP.

pinnks

Contracting out meant that instead of paying into the second part of the old state pension, the state earnings-related pension scheme (SERPS), later called S2P, you paid into a work-related pension scheme that was contracted out of SERPS because it guaranteed to pay at least as much as SERPS would have paid.  In return you and your employer paid less NI.  At pension age you would then get up to the max "basic pension" element under the old rules (based on a max of 30 years - the £156.20 mentioned in this thread) plus you contracted out pension, instead of a basic pension plus SERPS.

When the rules changed in 2016, contracting out ended and we now all pay the same rate of NI.  We all had to be transferred to the new rules and the calculation to transfer you is designed to ensure you are no worse off under the new rules than you would have been, had the rules not changed. 

Your "starting amount" as it is called is the higher of what the old rules would have given you (a max basic pension based on 30 years in your case); and what the new rules would have given had they always applied, (a max new state pension based on up to 35 years in your case, less the amount of COPE to reflect that you paid less NIC and would have received your workplace pension rather than SERPS). 

If your COPE figure is more than about £37, then your starting amount will be the old rules max.

From 2016/17 onwards you can still improve your lot, up to the new max, for each full NI year on your record.  This means, under the new rules, you can end up with more than you would have received as a basic pension under the old rules, and of course, still get your workplace pension. 

Most people yet to reach state pension age who were contracted out are winners under the new rules, as you can end up with nearly £50 per week more than you could otherwise have received... 

LHW99

I suggest keeping hold of the website screenshot, as well as the letter.

It won't get you the missed years paid for you, but if there should be any arguments about being able to pay particular years, or if you just want to draw your MP's attention to the issue, it would help.

SINDYGIRL

pinnks said:

Contracting out meant that instead of paying into the second part of the old state pension, the state earnings-related pension scheme (SERPS), later called S2P, you paid into a work-related pension scheme that was contracted out of SERPS because it guaranteed to pay at least as much as SERPS would have paid.  In return you and your employer paid less NI.  At pension age you would then get up to the max "basic pension" element under the old rules (based on a max of 30 years - the £156.20 mentioned in this thread) plus you contracted out pension, instead of a basic pension plus SERPS.

When the rules changed in 2016, contracting out ended and we now all pay the same rate of NI.  We all had to be transferred to the new rules and the calculation to transfer you is designed to ensure you are no worse off under the new rules than you would have been, had the rules not changed. 

Your "starting amount" as it is called is the higher of what the old rules would have given you (a max basic pension based on 30 years in your case); and what the new rules would have given had they always applied, (a max new state pension based on up to 35 years in your case, less the amount of COPE to reflect that you paid less NIC and would have received your workplace pension rather than SERPS). 

If your COPE figure is more than about £37, then your starting amount will be the old rules max.

From 2016/17 onwards you can still improve your lot, up to the new max, for each full NI year on your record.  This means, under the new rules, you can end up with more than you would have received as a basic pension under the old rules, and of course, still get your workplace pension. 

Most people yet to reach state pension age who were contracted out are winners under the new rules, as you can end up with nearly £50 per week more than you could otherwise have received... 

This link is now showing on gov.uk on my pension forecast page...it wasn't there yesterday or this morning...strange...it mentions the COPE ...

molerat

Has your forecast now changed ?  Although that is quite a small COPE amount if contracted out for a long time - were you always a teacher ?

SINDYGIRL

No forecast is still the same albeit it now includes the estimate bit ..I taught from 2006-2018.
does the COPE mean that my SP will be minus that?

molerat

SINDYGIRL said:

No forecast is still the same albeit it now includes the estimate bit ..I taught from 2006-2018.
does the COPE mean that my SP will be minus that?

COPE was only ever used when calculating your 2016 starting amount, it was deducted from the new scheme amount which would have left you with what you already had under the old rules.  As you were not a career teacher there is a possibility the forecast may be correct as you could have built up some additional pension in your pre teacher days.  But you will just have to wait and see.

SINDYGIRL

This is now...

SINDYGIRL

...but according to dwp this afternoon that info is incorrect ...its going to be a long 10 week wait!

molerat

So now you need 2 more years to reach the max.  One will take you to £200.21, the second will add another £3.64.

I suppose you will have to contact them again to make sure that is the final edit.