Contracted out but no effect on new state pension forecast?

molerat

b) is easy. No.  Retiring post April2016 with in excess of 35 pre 2016 years you cannot add to your pension.  You are receiving what you had earned under the pre 2016 pension rules.  The actual years that you were contracted out are irrelevant, it is just the total number that counts.

a) DWP will provide you with a breakdown on how your pension was calculated.  It will take many months for them to reply and it will be a long document.  If you don't have a head for numbers you won't understand it anyway, it is akin to rocket scientist maths !

handful

@molerat Sorry to also jump on this thread but I thought as it's a popular topic after MLs show last week I would just clarify something on my own situation. My Pension Forecast also states that I should get £221.20 a week and that I can't improve my forecast any more. It also states that I was contracted out  but this is where I'm a bit hazy because I can't remember and have no documents to confirm how long for. I believe it to be probably for aount 8 or 9 years from 1986-1995ish. Im not sure about the next job/pension that I had after that.

So, because I have full NI contributions showing on my record from 1978, I'm reading that as not being an issue because I had more than 30 years of work prior to 2016? Now, I also understand that if I retire after April 2025 I would also qualify for the higher state pension but I actually retired on 31st March last year. Does that mean I could potentially be one year short even though I have the declaration on my forecast that I cannot improve my forecast any more?

Many thanks for any comments of my understanding on this topic!

Dazed_and_C0nfused

handful said:

@molerat Sorry to also jump on this thread but I thought as it's a popular topic after MLs show last week I would just clarify something on my own situation. My Pension Forecast also states that I should get £221.20 a week and that I can't improve my forecast any more. It also states that I was contracted out  but this is where I'm a bit hazy because I can't remember and have no documents to confirm how long for. I believe it to be probably for aount 8 or 9 years from 1986-1995ish. Im not sure about the next job/pension that I had after that.

So, because I have full NI contributions showing on my record from 1978, I'm reading that as not being an issue because I had more than 30 years of work prior to 2016? Now, I also understand that if I retire after April 2025 I would also qualify for the higher state pension but I actually retired on 31st March last year. Does that mean I could potentially be one year short even though I have the declaration on my forecast that I cannot improve my forecast any more?

Many thanks for any comments of my understanding on this topic!

One year short of what?

If it would make you happy to have a complete set of qualifying years then I'm sure the Chancellor will appreciate you buying an extra year.

But it is no relevance whatsoever to your State Pension entitlement if the statement in bold is true.

handful

Dazed_and_C0nfused said:

handful said:

@molerat Sorry to also jump on this thread but I thought as it's a popular topic after MLs show last week I would just clarify something on my own situation. My Pension Forecast also states that I should get £221.20 a week and that I can't improve my forecast any more. It also states that I was contracted out  but this is where I'm a bit hazy because I can't remember and have no documents to confirm how long for. I believe it to be probably for aount 8 or 9 years from 1986-1995ish. Im not sure about the next job/pension that I had after that.

So, because I have full NI contributions showing on my record from 1978, I'm reading that as not being an issue because I had more than 30 years of work prior to 2016? Now, I also understand that if I retire after April 2025 I would also qualify for the higher state pension but I actually retired on 31st March last year. Does that mean I could potentially be one year short even though I have the declaration on my forecast that I cannot improve my forecast any more?

Many thanks for any comments of my understanding on this topic!

One year short of what?

If it would make you happy to have a complete set of qualifying years then I'm sure the Chancellor will appreciate you buying an extra year.

But it is no relevance whatsoever to your State Pension entitlement if the statement in bold is true.

I was referring to the advice about the 9 years of contributions that are required from 2016. I retired last year so have only made 8 years of contributions since 2016. From what you are saying I don't need to worry though so thanks for that.

german_keeper

handful said:

Dazed_and_C0nfused said:

handful said:

@molerat Sorry to also jump on this thread but I thought as it's a popular topic after MLs show last week I would just clarify something on my own situation. My Pension Forecast also states that I should get £221.20 a week and that I can't improve my forecast any more. It also states that I was contracted out  but this is where I'm a bit hazy because I can't remember and have no documents to confirm how long for. I believe it to be probably for aount 8 or 9 years from 1986-1995ish. Im not sure about the next job/pension that I had after that.

So, because I have full NI contributions showing on my record from 1978, I'm reading that as not being an issue because I had more than 30 years of work prior to 2016? Now, I also understand that if I retire after April 2025 I would also qualify for the higher state pension but I actually retired on 31st March last year. Does that mean I could potentially be one year short even though I have the declaration on my forecast that I cannot improve my forecast any more?

Many thanks for any comments of my understanding on this topic!

One year short of what?

If it would make you happy to have a complete set of qualifying years then I'm sure the Chancellor will appreciate you buying an extra year.

But it is no relevance whatsoever to your State Pension entitlement if the statement in bold is true.

I was referring to the advice about the 9 years of contributions that are required from 2016. I retired last year so have only made 8 years of contributions since 2016. From what you are saying I don't need to worry though so thanks for that.

I was contracted out throughout my working life, so I was always confused why I only needed 7 post 2016 years to hit the jackpot. But I found out via this forum that there was a period before 2016 when if you were contracted out and earned below a certain level you got some S2P. So presumably my starting point in 2016 was about a tenner or so higher than the basic state pension. Maybe that is why you only needed 8 years instead of 9.  

molerat

handful said:

I was referring to the advice about the 9 years of contributions that are required from 2016. I retired last year so have only made 8 years of contributions since 2016. From what you are saying I don't need to worry though so thanks for that.

It was not required those 9 years to get a full pension but would get a full pension if they had those 9 years, that was the worst case scenario.  With the absolute minimum 30 year pre 2016 amount the post 2016 contributions up to 24-25 would fill the gap.  The higher the starting amount the less post 2016 years would be needed.

handful

molerat said:

handful said:

I was referring to the advice about the 9 years of contributions that are required from 2016. I retired last year so have only made 8 years of contributions since 2016. From what you are saying I don't need to worry though so thanks for that.

It was not required those 9 years to get a full pension but would get a full pension if they had those 9 years, that was the worst case scenario.  With the absolute minimum 30 year pre 2016 amount the post 2016 contributions up to 24-25 would fill the gap.  The higher the starting amount the less post 2016 years would be needed.

Ok thanks all. Basically I have nothing to worry about if I'm understanding this correctly!

BathgateMan

There was an article in the Telegraph (24/10/24 written by Steve Webb) that I found very informative on this subject (note that the pension amounts quoted are from an earlier tax year, 23/24 I think):

"For anyone who doesn’t follow pensions closely, the one thing that “everyone knows” about the new state pension is that you need 35 years of National Insurance contributions to get a full pension.

Except that this is not the case.

There are people with more than 35 years who don’t get a full pension.

And there are people with less than 35 years who do get a full pension.

In this article I will try to do two things. First, I will explain how the new state pension is actually worked out.  And second, I will explain why the rules are as they are.

As pensions minister between 2010 and 2015, a large part of my job was designing and implementing the “new”, post-2016 state pension, so this is something I have spent rather a long time on.

Firstly, there are two stages in working out someone’s new state pension entitlement.

Step 1: The ‘foundation amount’

The first is to work out what is referred to in legislation as your “foundation amount” at the point the new system was introduced on 6 April 2016.  

In simple terms, this is the greater of the amount you had built up by that point under the old rules, and how much you would have got under the new rules.

The idea of this part of the calculation is to provide protection for people who might otherwise have seen a cut in their pension if the new rules were imposed overnight.

To be more precise, the foundation amount is the greater of:

The “old rules” calculation

A full basic pension (currently £156.20 a week) for 30 years or more of contributions, plus any additional earnings-related pension (also known as SERPS or State Second Pension) which you had built up by this point.

Or,

The “new rules” calculation

A full flat rate pension (currently £203.85 a week) for 35 years, minus a substantial deduction for past periods when you were “contracted out” into a workplace pension;  I explain more about contracting out later on;

For those whose foundation amount is in excess of the full flat rate, their pension is locked at this figure (but will still benefit from inflation increases) – further contributions from the 2016-17 tax year onwards have no effect on their pension.

Step 2: Years from 2016-2017 onwards

For each full financial year from 2016-17 onwards, an extra 1/35th of the full flat rate is added to your foundation amount until you reach the full flat rate. Once these extra years bring you up to the full flat rate, no further addition to your state pension is possible.

Based on a full flat rate of £203.85 per week, each extra year from 2016-17 onwards adds 1/35th of this amount, £5.82 per week, to your state pension.

One consequence of this structure is that even those with a big deduction for contracting out can – eventually – build back up to a full state pension on top of their company pension, provided they have enough years of post 2016 contributions. 

Why did the Government design the system like this?

At first glance, the two-stage process I have described for working out the new state pension looks unnecessarily complicated.

Why not just pay everyone a full pension for 35 years and a pro-rata amount if they have 34 years, 33 years, and so on?

The answer to this question comes back to the vexed issue of contracting out.

Contracting out

“Contracting out” was a deal between a worker, an employer and the Government.

When the Government created the state earnings-related pension scheme (SERPS) in 1978, this gave every worker the opportunity to build up a second, earnings-related pension on top of their basic pension. 

But millions of workers (including millions in the public sector) already had a second pension through their employer – and they didn’t need another one via the state pension.

To avoid this duplication, employer pension schemes were allowed to “contract out” of this second tier of the state pension.

The deal was that the employer and the worker paid a reduced rate of National Insurance.

In return, the workplace pension had to provide something at least as good as the SERPS scheme would have delivered. In recognition of these lower contributions, a deduction was made at retirement from the state pension, but this was generally more than matched by the company pension which took its place.

When the Government decided to introduce a new “single tier” state pension in 2016, there was a dilemma about how to treat people who had spent many years paying in at a lower rate.  

There were two extreme options:

• To completely ignore past contracting out and pay a full pension to anyone with 35 years in the system, at whatever rate. But this would have been grossly unfair to people who had always paid full rate contributions.
• To permanently take account of past contracting out, always making a deduction from the state pension of anyone who had ever contracted out.

The problem with this is that for many decades after the new “simple” state pension came in, millions of people would still be short of the new flat rate because of one or more year of contracted out employment – it would have been bizarre to talk about a “flat rate” pension system when even in 2050 and beyond people were having deductions for periods of reduced contributions up to half a century earlier.

To try to strike a balance between fairness to people who did not contract out but also to try to get to the new simpler system as quickly as possible, a compromise was struck.

Past contracting out would be recognised in the system via a one-off deduction in 2016 as part of the foundation amount calculation. But this deduction could then be “burned off” by further contributions post 2016.

The result of all of this is that the majority of people retiring today do get precisely the standard flat rate amount. And, with every passing year, the proportion who get the standard rate will grow.

It would have been great to design a new state pension system from scratch, with a blank sheet of paper and no history. But sadly, pension reform is never like that.

I believe that the new structure strikes the right balance between honouring past contributions and moving to a new simpler system as soon as possible.

Over time more and more people will know with clarity exactly what they will get from the system, men and women will be treated equally for the first time, and the state pension will provide a firm foundation for additional private pension saving."

seychelles10

https://forums.moneysavingexpert.com/discussion/comment/81849162#Comment_81849162

Morning All

Your advice would help greatly thank you

I was contracted out for ten years from 1988 to 1999.
1999 to 2001 worked with no company pension scheme .
I joined a company pension scheme from 2002 to 2023.
During 2023, 2024, and 2025 I withdrew my entire company pension scheme amount and used the whole amount to clear my mortgage .

I have just received the automated ( by AI) ‘Your State Pension Amount’ notice from the Pension Service which states £930 per four weeks on 5 June and £965 four weekly thereafter.

At first I thought this amount must be at the 2025 new state pension amount but an online search stated that a pension amount notice is for the new rate with the annual increase from April 2026 .

I worry as challenging it for a manual review by a human for a ‘Mandatory Reconsideration could result in a further decrease imposed.

Does my pension history and my contracted out period indicate that the amount quoted is right or quite wrong?

molerat

Had you ever checked your forecast before applying ? Why do you think it is wrong ? As you have received the actual pension payment amounts / dates then your pension has been calculated and checked against your record. Are those amounts quoted the exact amounts as the full 2026 pension is £965.20 per 4 weeks ?