Contracted Out - Was The Impact On Our State Pensions Really Communicated Properly?

xylophone

Employers providing defined benefit pension schemes were permitted to "contract out" of SERPS which meant that both the employer and the employee paid a lower rate of National Insurance.

I should have added that the Scheme Booklet provided to employees should explain "contracting out" and the GMP.

Example

https://pensions.shell.co.uk/scpf/resources/factsheets/_jcr_content/par/expandablelist_1837370777/expandablesection.stream/1669360338470/47616fbc795cb10e67f57841660bd3d81a5e8d48/gmp-factsheet-november-2022.pdf

GSP

Marcon said:

You don't have to make 'extra payments totalling thousands of pounds'; your choice if you wish to do so. You're still vastly better off by having a pension from a DB scheme which was contracted out.

On my SP forecast it says I have to make up 4 years of contributions to receive full SP (estimate £182.30 a week, forecast £203.85 a week), so I make it will take several thousand pounds to qualify for the full SP.

I transferred out from a DB pension to flexible drawdown nearly six years ago.

Thanks

Dazed_and_C0nfused

GSP said:

Marcon said:

You don't have to make 'extra payments totalling thousands of pounds'; your choice if you wish to do so. You're still vastly better off by having a pension from a DB scheme which was contracted out.

On my SP forecast it says I have to make up 4 years of contributions to receive full SP (estimate £182.30 a week, forecast £203.85 a week), so I make it will take several thousand pounds to qualify for the full SP.

I transferred out from a DB pension to flexible drawdown nearly six years ago.

Thanks

You only have to pay if you wish to increase your State Pension.  If you are happy with £182.30/week you can keep your money.

That was your proactive choice to give up the security of a DB pension.

michaels

I have been so screwed by not contracting out - I ended up with serps/s2p worth precisely zero plus all the years of NI I have paid since 2016 have earned me precisely zero in additional state pension - instead I could have had a nice contracted out pot and my NI now would be earning me state pension. 

Can I sue for compensation for having failed to contract out?  One of my worst decisions.

Marcon

GSP said:

Marcon said:

You don't have to make 'extra payments totalling thousands of pounds'; your choice if you wish to do so. You're still vastly better off by having a pension from a DB scheme which was contracted out.

On my SP forecast it says I have to make up 4 years of contributions to receive full SP (estimate £182.30 a week, forecast £203.85 a week), so I make it will take several thousand pounds to qualify for the full SP.

I transferred out from a DB pension to flexible drawdown nearly six years ago.

Thanks

You're missing the point. There is nothing 'magic' about a 'full' State Pension when the comparator is the amount being paid by a DB company pension scheme. Had you chosen to opt out of membership of the scheme (which was possible from 1988; until then employers could make membership of their pension scheme compulsory - and it was a black day for employees when that was removed), you would have paid higher NI and not built up any company-sponsored private pension. So you wouldn't have been able to transfer to flexible drawdown because there would have been nothing to transfer!

How much was your transfer payment six years ago? I can guarantee it will be many thousands of pounds more than the 'several thousand' you would pay to qualify for a full State Pension.

Marcon

michaels said:

I have been so screwed by not contracting out - I ended up with serps/s2p worth precisely zero plus all the years of NI I have paid since 2016 have earned me precisely zero in additional state pension - instead I could have had a nice contracted out pot and my NI now would be earning me state pension. 

Can I sue for compensation for having failed to contract out?  One of my worst decisions.

Suing yourself...now there's a battle you can't win!!

DBdoobydoo

Dazed_and_C0nfused said:

squirrelpie said:

The OP doesn't seem to have understood much about contracting out at the time, or even now. They might want to read something like https://techzone.abrdn.com/public/pensions/Tech-guide-contracting-out

Basically some money that would have been taken by the government and used to augment your state pension, was instead taken by a private pension company and used to augment your pension. One guess as to which most people thought was the better bargain. Since the new pension rules were introduced in 2016 it's been completely obvious that having been contracted out was beneficial.

^^^ This all day long.

A lot of people are doing very nicely having paid reduced NI for many years and now have the opportunity to reach the standard new State Pension 😊

Unfortunately for many who were contracted out it's not possible to reach the standard new State Pension. I am over £30 per week short because I reached State Pension age too early. I would love the opportunity to pay £4,800 in Class 3 National Insurance contributions to reach the full amount.

jem16

DBdoobydoo said:

Dazed_and_C0nfused said:

squirrelpie said:

The OP doesn't seem to have understood much about contracting out at the time, or even now. They might want to read something like https://techzone.abrdn.com/public/pensions/Tech-guide-contracting-out

Basically some money that would have been taken by the government and used to augment your state pension, was instead taken by a private pension company and used to augment your pension. One guess as to which most people thought was the better bargain. Since the new pension rules were introduced in 2016 it's been completely obvious that having been contracted out was beneficial.

^^^ This all day long.

A lot of people are doing very nicely having paid reduced NI for many years and now have the opportunity to reach the standard new State Pension 😊

Unfortunately for many who were contracted out it's not possible to reach the standard new State Pension. I am over £30 per week short because I reached State Pension age too early. I would love the opportunity to pay £4,800 in Class 3 National Insurance contributions to reach the full amount.

You’ve not lost anything though as you’re getting at least what you were always going to get under the old system. 

p00hsticks

jem16 said:

DBdoobydoo said:

Dazed_and_C0nfused said:

squirrelpie said:

The OP doesn't seem to have understood much about contracting out at the time, or even now. They might want to read something like https://techzone.abrdn.com/public/pensions/Tech-guide-contracting-out

Basically some money that would have been taken by the government and used to augment your state pension, was instead taken by a private pension company and used to augment your pension. One guess as to which most people thought was the better bargain. Since the new pension rules were introduced in 2016 it's been completely obvious that having been contracted out was beneficial.

^^^ This all day long.

A lot of people are doing very nicely having paid reduced NI for many years and now have the opportunity to reach the standard new State Pension 😊

Unfortunately for many who were contracted out it's not possible to reach the standard new State Pension. I am over £30 per week short because I reached State Pension age too early. I would love the opportunity to pay £4,800 in Class 3 National Insurance contributions to reach the full amount.

You’ve not lost anything though as you’re getting at least what you were always going to get under the old system. 

Agreed- too many people on these boards claim that 'their pensions have been reduced' due to being contracted out, when what is actually happening is that they are only getting the basic state pension that they should always have been expecting or they are making additional voluntary contributions to take advantage of an unexpected opportunity to increase that amount further.

xylophone

Agreed- too many people on these boards claim that 'their pensions have been reduced' due to being contracted out, when what is actually happening is that they are only getting the basic state pension that they should always have been expecting 

Some people who are in receipt of DB pensions and who reached SPA at or shortly after inception of NSP have been badly done by - those who are not members of public service pension schemes and who were expecting the GMP indexation to be provided through the mechanism described in my previous which has been lost from the single tier SP.

https://www.ombudsman.org.uk/making-complaint/what-we-can-and-cant-help/how-we-have-helped-others/communication-changes-inflation-state-pensions

https://committees.parliament.uk/writtenevidence/1429/html/