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

Ciprico

Very impressive knowledge on display here...but completely baffling to me...

If your forecast says you have reach the maximum pension possible... And a cope of £43 I suppose that means nothing further can be done ...

I was one of those who contracted out and then back in but never knew what it really meant. I have never had a dB pension but alway had a private|stakeholder|Sipp.

So I can assume the cope is the extra pension payment made to my DC pension back in the day by the govt and I have also paid enough NI to get a full pension. I've worked pretty much continuously for 44 years (and still do)....

Dazed_and_C0nfused

Ciprico said:

Very impressive knowledge on display here...but completely baffling to me...

If your forecast says you have reach the maximum pension possible... And a cope of £43 I suppose that means nothing further can be done ...

I was one of those who contracted out and then back in but never knew what it really meant. I have never had a dB pension but alway had a private|stakeholder|Sipp.

So I can assume the cope is the extra pension payment made to my DC pension back in the day by the govt and I have also paid enough NI to get a full pension. I've worked pretty much continuously for 44 years (and still do)....

It's not the initial forecast figure that is key but what you have already accrued.

If you have now accrued £203.85/week then you cannot improve on that and will get the standard new State Pension will you reach your State Pension age.

As it stands the £203.85 will increase each year under the triple lock rules.  

Ciprico

I've accrued slightly more...?
And cope £43 per week which I guess is embedded in my SIPP ?

I reach spa in 5 years... Is £225 what's expected then....

• is not a guarantee and is based on the current law
• is based on your National Insurance record up to 5 April 2022
• does not include any increase due to inflation

£225.92 is the most you can get

You cannot improve your forecast any more.

Dazed_and_C0nfused

That must have been your starting amount (adjusted for inflation increases) so yes that's what you will get when you reach SPa.  With each years inflation increase added. 

I think your increases are split between the standard £203.85 (triple lock rate) and the excess, which just gets CPI I think.

pinnks

Correct.  Protected Payments get the same increase as Additional Pension - CPI.  Good this year but not always the case...

xylophone

I was one of those who contracted out and then back in 

I've accrued slightly more...?
And cope £43 per week which I guess is embedded in my SIPP ?

The fact that your forecast is for an amount higher than a full NSP indicates that despite the COPE,  at inception of NSP, your "starting (foundation) amount" was higher than a full New State Pension.

At  6/4/16, two calculations were done under old and new rules and your starting amount was the higher of the two.

Old Rules

NI qualifying years/30 (max) x £119.30 (Full Basic) + (Additional State Pension - Deduction for Contracting Out).

New Rules

{NI qualifying years/35 (max) x £155.65 (Full NSP)} - COPE.

In your particular case, your starting amount was given by the old rules calculation and was over £155.65.

The amount over £155.65 became your "protected payment".

Since then, even if you have been paying NI, it has not improved your starting amount.

It has however been index linked, the amount equal to full NSP under the "triple /double lock" and the protected payment by CPI.

You say that you never had a DB pension so presumably you chose to contract out for a period through a personal pension.

https://techzone.abrdn.com/public/pensions/Tech-guide-contracting-out#:~:text=Contracting out was a method,SERPS) for particular tax years.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

DBdoobydoo

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. 

I have lost out in comparison with my younger brother who also was contracted out but will get a full single tier State Pension.

Ironically I still continue to work post SPA but the money I save because I no longer pay National Insurance is never going to replace my pension shortfall.

It would have been more equitable to allow those of us still in work post SPA to continue to pay NI contributions but continue to accumulate pension up to the maximum. The government are keen for people who left the workforce during the pandemic to return to work & this could be a measure to encourage that.

hyubh

DBdoobydoo said:

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. 

I have lost out in comparison with my younger brother who also was contracted out but will get a full single tier State Pension.

Ironically I still continue to work post SPA but the money I save because I no longer pay National Insurance is never going to replace my pension shortfall.

It would have been more equitable to allow those of us still in work post SPA to continue to pay NI contributions but continue to accumulate pension up to the maximum. The government are keen for people who left the workforce during the pandemic to return to work & this could be a measure to encourage that.

The actual transitional arrangements are already generous for many formally contracted out people (understandably so, given the complexities of implementing something 'fairer'). In contrast, many (most?) formally never contracted out people under SPA actually lost out. As such, making the transitional arrangements even more generous to formally contracted out people, to allow for older members of that group to get a bigger (or even bigger) state pension than they were previously due, would have made the overall 'unfairness' worse.

Marcon

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.

...and many women would love to have been able to reach their State Pension Age 'too early' (ie while it was still at 60). Things change...

molerat

This only seems to be a perceived problem for post 2016 retirees.  Is it because of the ill informed press headlines for the single tier pension and everyone getting £203.85 for 35 years contributions ?  Doesn't seem to be many pre 2016 retirees complaining they are not getting £360.86 per week.