Cannot get full state pension due to 'contracting out'

System

This discussion was created from comments split from: Additional voluntary NI contributions.

Dave_WP

Hi

I am 66 (i.e. state pensioner), but it appears I cannot get the full state pension due to being a majority of my employment being in nationalised industries where I paid the "contracted out" NI rate.

I have incomplete NI years between 2009 and 2016, but I've been told twice (2017 and in March 2023) that making additional voluntary contributions to complete these years would not affect my state pension.

For 2009, I only need to make a small payment for that year for it to be considered complete.

Is there anyway I can ask the Pension Service to review my situation, by say asking for one of the years covered with the "contracted out" NI rate to be replaced by 2009.  Could this lead to an increase in pension?

I feel this point was not really covered in Martin's TV programme last night as I know this situation potentially affects anyone who works in local authorities, teachers, central government, state industries, etc.  Many of whom take early retirement and live on employment pensions and savings until the state pension kicks in.

QrizB

Dave_WP said:

I have incomplete NI years between 2009 and 2016, but I've been told twice (2017 and in March 2023) that making additional voluntary contributions to complete these years would not affect my state pension.

If you are now 66, you will have turned 16 in 1973 and could have 43 NI years prior to 2016. If you are only missing seven of these, you will still have 34 full years prior to 2016.

Is this correct, and do you have 30 or more full years prior to 2016? If so, adding extra years is unlikely to add to your pension.

Are your years after 2016 full?

p00hsticks

Dave_WP said:

Is there anyway I can ask the Pension Service to review my situation, by say asking for one of the years covered with the "contracted out" NI rate to be replaced by 2009.  Could this lead to an increase in pension?

No - although pre-2016 people paid a lower rate of NI if contracted out, for the purposes of calculating basic/new state pension entitlement, if paid for a full 52 weeks, a year 'contracted out' is treated exactly the same as one 'contracted in', or creditted because someone is on benefits or bought by voluntary contributions - they are all counted as 'full years'.

 The old 'basic state pension' in effect for those reaching State Pension Age immediately prior to 6th April 2016, and now worth £156.20, was paid to any one with at least 30 full NI years - years over 30 didn't increase your basic state pension amount (although those who were 'contracted in' and paying a higher rate of NI were building up some additional state pension on top (SERPS/S2P), and prior to 2010 the number of years required was much higher; 39 for a woman and 44 for a man).

 In an effort to simplify things, the notion of contracting in or out was done away with as part of the new State Pension. Those born this century who only started work since its introduction simply need 35 full years to be entitled to the new State Pension maximum value - currently £203.85. Each year simply adds 1/35th of the amount to your entitlement, providing you have a minimum of ten years.

 Those of us who started working prior to 2016 but reached State Pension Age after it fall under 'transitional rules'. The amount we would be entitled to under both the old and new rules was calculated and the higher of the two amounts taken as our 'starting amount'. To ensure that account was taken of the different rates of NI people had been paying previously, the calculation incudes the deduction of a COPE (Contracted Out Pension Equivalent) figure, The upshot is that for those of us who spent most of our lives contracted out, our 'starting amount' was that under the old rules, leading to an entitlement the same as the old basic £156.20 state pension that we were expecting for most of our working lives.

 For those of us still under state retirement age for a few years after 2016, however, the new rules have given people the unexpected opportunity to increase their entitlement further, potentially up to the new State Pension maximum of £203.85, either by working, getting benefit-associated credits or by making voluntary contributions for post 2016 years.

 Unfortunately those like you who reached SPA soon after 2016 haven't had time to build up the additional years required and so haven't reaped the full benefit of the change in rules. However, the transitional rules ensure that at the very worst you will be in the same position as you would always have been if the rules had not changed.

[EDIT: I've just realised you say you are 66 ? If you had at least 30 years prior to 2016, then post-2016 years you have should have given you the opportunity to increase your pension to at least £190 - considerably more than you would have got under the old system. If it is less than this, it would suggest you have you some post-2016 gaps you could fill ? )

molerat

At April 2016 you were given the higher of what you had accrued under the old scheme or your calculation under the new rules.  You can top up that amount with post 2016 contributions if you have gaps.  You could also buy that pre 2016 year but due to the way entitlement is calculated it will not add to the pension.

xylophone

Did you obtain a state pension forecast before claiming your state pension?

 If so, what exactly did it show?

What was the COPE shown?

Otherwise, when did the pension start and what is your weekly payment?

How many qualifying years did you have at 5/4/16?

And from 6/4/16 to the last  full tax year before the one in which you reached SPA?