BTPS pension offset & NI contributions beyond 35yrs.

tommo45

Hi, i appreciate there are various posts around this topic but i’ve not found anything to specifically answer my query.

I am a BTPS section C member and I noticed in a recent retirement quote a not so insignificant “pension offset” decrease when i reach state pension age.

ive read all the BTPS blurb & fact sheets, several times in fact & appreciate it’s rooted in the contracting in/out years 2009 to 2016 & in theory i’m no worse off as a result of decisions made back then…..however my questions is this.

my understanding of the issue is that during those years i payed a smaller NI contribution, fair enough I say, however I am now in my 42nd year of NI contributions, so should these extra 7 years of contributions go some way to reducing my quoted BTPS pension offset ?

thanks.

Marcon

tommo45 said:

Hi, i appreciate there are various posts around this topic but i’ve not found anything to specifically answer my query.

I am a BTPS section C member and I noticed in a recent retirement quote a not so insignificant “pension offset” decrease when i reach state pension age.

ive read all the BTPS blurb & fact sheets, several times in fact & appreciate it’s rooted in the contracting in/out years 2009 to 2016 & in theory i’m no worse off as a result of decisions made back then…..however my questions is this.

my understanding of the issue is that during those years i payed a smaller NI contribution, fair enough I say, however I am now in my 42nd year of NI contributions, so should these extra 7 years of contributions go some way to reducing my quoted BTPS pension offset ?

thanks.

What do the rules of the scheme say?

tommo45

I can’t find anything that addresses the point I make.

Marcon

tommo45 said:

I can’t find anything that addresses the point I make.

Then the best way to be sure is to ask those administering the scheme. They should be able to clarify.

hyubh

tommo45 said:

Hi, i appreciate there are various posts around this topic but i’ve not found anything to specifically answer my query.

I am a BTPS section C member and I noticed in a recent retirement quote a not so insignificant “pension offset” decrease when i reach state pension age.

ive read all the BTPS blurb & fact sheets, several times in fact & appreciate it’s rooted in the contracting in/out years 2009 to 2016

This is something specific to the BTPS, rather generic, so threads about contracting out in general aren't relevant. It also concerns when the scheme ceased contracting out despite the possibility of contracting out still existing.

my understanding of the issue is that during those years i payed a smaller NI contribution

Technically you didn't. Contracting in meant your NI contributions were now at the regular, higher rate, however, BT compensated you for this through an allowance. In exchange though, the scheme was to subtract the S2P you gained from that higher NI from your BT pension.

The 2016 changes in the state pension broke the link, since for anyone reaching state pension age now, there is no S2P. As such, the BTPS pension offset is a notional figure not directly covering any named component of your state pension.

however I am now in my 42nd year of NI contributions, so should these extra 7 years of contributions go some way to reducing my quoted BTPS pension offset ?

No. In fact, following the original logic, if your post-2016 NI years are earning you more state pension, then arguably this should increase the BTPS offset. (It doesn't because the link is just broken...)

tommo45

thanks for that hyubh, I needed someone with an understanding of this complex area to throw cold water on my hopeful thoughts.

xylophone

Information provided for members of the scheme.

https://www.btps.co.uk/MediaArchive/SchemeSite/BTPS_Member_Booklet_Section_C.pdf

Normal Pension Age is 60 if you only have pre-1 April 2009 service with BT, or 65 if you have any post-1 April 2009 service. 

State Pension Offset

If you were an active member after 6 April 2009, the State Pension Offset will reduce your BTPS pension once you reach your State Pension age.

What is the State Pension Offset?

A permanent reduction to your annual BTPS pension when you reach State Pension age. It’s important to look at the figure we provide in your Pension Quote for your State Pension Offset. Be aware though that the figure will rise broadly in line with National Average Earnings (known as Section 148 Orders) each year so it will be higher when you reach State Pension age. You may be taking your pension several years before you reach State Pension age so it’s important to factor in this future reduction when making your pension choices.

Why do we apply it to your pension?

Before 6 April 2009, the BTPS was contracted out of the State Second Pension (also known as the Additional State Pension). This meant that you and BT paid less in National Insurance contributions as you weren’t building up a State Second Pension. As part of this arrangement, the Scheme agreed to provide members with a guaranteed minimum level of pension benefits that were similar to the State Second Pension they’d given up.

From 6 April 2009 Section C of the BTPS stopped contracting out and contracted back in to the State Second Pension. This meant that, from this date, these members paid higher National Insurance contributions and started to build up an entitlement to a State Second Pension to top up their basic State Pension. BT also compensated members for the additional National Insurance contributions that they had to pay. If you were one of these members, you’ll have seen this on your BT payslip as an allowance.

The State Pension Offset was designed at the time to be broadly equivalent to the State Second Pension members had begun to build up. The intention was to make members’ overall State and BTPS pensions as near as practicable to what they would have had if the BTPS had continued to contract out.

To calculate the State Pension Offset, we use a fixed formula that’s been prescribed in the BTPS Rules since April 2009.

In April 2016 the State Second Pension and Basic State Pensions were replaced by the New State Pension. There
are significant differences in how the New State Pension is calculated compared to the previous two-tier arrangement. 

The State Pension Offset, when added into the Scheme Rules in April 2009, did not directly track the State Second Pension or any subsequent changes to it. So, although, since April 2016, the BTPS continued to apply the State Pension Offset using the same fixed formula prescribed in the Scheme Rules since 2009 (and similarly, BT continued to pay the National Insurance allowance as it has always done since 2009), there was no longer a link between how the State Pension Offset in the BTPS was calculated and how the State Pension was calculated.

Where to find out more

You can find out more in the State Pension Offset factsheet 

https://www.btps.co.uk/MediaArchive/SchemeSite/BTPS State Pension Offset factsheet (March 2021).pdf

On 6 April 2016 the provision of State Pension from the Government was significantly changed. For those reaching their SPA on or after that date the two-tier system (i.e.a basic State Pension plus, where applicable, an S2P pension) was ended and a new single-tier flat-rate State Pension was introduced. This means that whilst your Scheme benefits continue to build up in the same way as previously, your total State Pension after 6 April 2016, when added to your Scheme benefits, will not necessarily be the same overall as it would have been if the Government hadn’t changed the State Pension. As a result of this, some members may be better off, and some members may be worse off.

BT, following consultation with its recognised unions, issued announcements in early 2016 directly to all active Scheme members at that time advising them of these State Pension changes and the likely impact on benefits in general terms. Initial discussions between BT and its unions on this were overtaken by the decision, agreed between BT and the unions, to close Sections B and C of the Scheme to future accrual on 30 June 2018.

As a result, the new situation introduced by the changes in State Pension arises only in respect of benefits accrued between 6 April 2016 and 30 June 2018. Consequently, for many members any difference in benefits resulting from the 2016 revised State Pension approach is likely to be small in the context of their overall benefits. Many, although not necessarily all, members will have built up their combined State Pension and Scheme benefits over that period at a greater rate than they would have done under the old State Pension system, and so will be better off overall as a result. However, whether members will be better or worse off will depend on their individual circumstances. The Scheme does not hold sufficient information about a member’s State Pension entitlements to assess this on a case by case basis.

tommo45

thanks for that xylophone but at the very top of my thread i do state i have read these articles & could find nothing that answers my very specific query, unfortunately for me hyubh has killed my hope that for me extra NI contributions might have reduce the offset value.

xylophone

I am a BTPS section C member and I noticed in a recent retirement quote a not so insignificant “pension offset” decrease when i reach state pension age.

I assume that you are approaching age 60?

You joined this Defined Benefit scheme in the  mid eighties?

If so, you were "contracted out" of the Additional State Pension Scheme (SERPS) introduced by the Government in 1978.

The name of the ASP changed (together with certain terms of the scheme) to State Second Pension (S2P) in 2002.

In return for providing a pension at least as great as  members would have accrued had they been contracted in, both the Scheme and Scheme members paid a lower rate of National Insurance.

In 2009, although contracting out was still possible, the Scheme Trustees decided to contract back in to  the Additional State Pension.

This meant that Scheme Members would start paying a higher rate of National Insurance.

However, BT covered this by paying members an allowance sufficient to cover the higher NI paid.

It was rather like lending members the money to pay the levy to build up the ASP they would receive at SPA?

The members' Scheme Pension would then be decreased by a certain amount when they reached SPA ( a kind of repayment of the

"loan")? That is not literal but roughly conveys the idea?

"Contracting out" finally ended for DB Schemes with the introduction of the New State Pension in 2016.

The ASP system also ended.

And as above, accrual in BT Section C pension ended in 2018.

Have you obtained a State Pension Forecast?

https://www.gov.uk/check-state-pension

And see this post for how your "starting amount" for NSP was calculated on 6/4/16


https://forums.moneysavingexpert.com/discussion/comment/81045294/#Comment_81045294

xylophone

i do state i have read these articles

I copied them in them for the convenience of other posters who might have liked to comment (to save them the trouble of having to locate the Guide and Fact Sheet).

tommo45

thanks xylophone, that’s a really good way of simplifying this for me & hopefully others, i now know that paying extra NI years cannot/does not reduce that offset figure.

you were spot on, i’m 57 & been in the scheme since 1988 & just applied to take the pension.

I have 42 full years NI contributions & yes am entitled to the full state pension, it cannot be improved.