Understanding contracting out

amanda1024

I’m struggling to understand the impact of having been contracted out from 2010 to April 2016. I’ve checked my NI contribution record and every year from 2010 to 2011 to now is showing as ‘Full year’. Overall I have 7 full years since April 2016, 6 full years before that (when I was contracted out), and 3 full years of credits (when I was still at school) - so 16 full years (up to April 2023). My state pension estimate up to April 2023 is £91.04. My COPE estimate is £11.82 a week. So I can’t figure out the calculation. I thought maybe 9/30 x old basic pension + 7/35 x new state pension, i.e. £87.63, or 16/35 x new state pension, i.e. £93.19. But neither seems to match the estimate, with or without subtracting the COPE estimate. I’ve seen a couple of references to top-ups to S2P even for those contracted out, for those on low-moderate incomes, but can’t find detail (eg on what’s moderate) - perhaps that’s the difference…

Ultimately, I’m trying to figure out if it’s worth paying to fill any of the four partial years before 2010 to 2011 (when I was at university and only had summer jobs), or if there’s no point because of having been contracted out. Plus if I work for another 19 years I’ll hit the max anyway (subject to whatever the politicians do over that period), but obviously that one’s for me to figure out

p00hsticks

I suspect that you're young enough to not really worry about it, but briefly...

When the new state pension was introduced on April 6th 2016, two calculations were done - one under the old rules and one under the new. The higher of the two figures became your 'starting amount' at that point. Every NI year since then has simply added 1/35th of the new state pension to that starting amount. 

I can't recall the exact formulae or amounts applicable in 2016 off the top of my head, but roughly

OLD rules
(NI years up to a max of 30 / 30 ) * old basic state pension amount + any SERPS/S2P addition

NEW Rules
(NI years up to a maximum of 35 / 35) * new state pension amount - COPE

AS you had less than 10 years NI in 2016 (which is the minimum necessary for a new State Pension) I'm not sure if you would have had a non-zero figure for the latter calc. 
 
Buying 4 pre-2016 years would increase your 'starting amount' and could result in changing from being based on the old rules to the new but I doubt if there would be much difference. 

but in your shoes I'd put that money in a savings account now and if necessary make voluntary contributions later in life if you;ve not reached the max from wither employment or credits.  

molerat

The COPE amount was only ever used for the 2016 new pension calculation, it was only used at the 2016 rate.  

At April 2016 you had an old scheme calculation of £35.79 basic pension (9/30 of £119.30) + £2.59 S2P (which already included a contracted out deduction) so £38.38. The new scheme calculation was £40.02 (9/35 of £155.65) - £11.82 COPE so £28.20.  The old scheme £38.38 was the greater so was used as your starting amount.  Since 2016 that has been increased with the annual uprate and additional years added.

What year do you reach retirement ?  If you have much more than the 19 years needed before retirement it is probably not worth filling any past part filled gaps unless they are ridiculously cheap

You are (£112.81 / £5.82 = 19.4) 20 years, including 23-24, short of the maximum pension.  

Purchasing those 4 years will take your current amount to £111.87, £71.10 at April 2016 as purchasing pre 2016 years recalculates the April 2016 amount (£101.01 new scheme calculation, £60.24 at April 2016) so another (£91.98 / £5.82 = 15.8) 16 years to reach the max.

amanda1024

Thank you both - this is really helpful. I think the part years are about £300 each to fill, so less than whole years would be, and a lot less than I actually pay in NI each year. But I think I have until 2025 to decide anyway.