State Pension Prediction may be incorrect if you contracted out of SERPS in the past

jjwarnes

I would like to draw your attention to a bug in the online State Pension summary that affects individuals who had previously contracted out of SERPS. In essence, if an individual contracted out of SERPs in the past, their online state pension prediction may be incorrect. The magnitude of the error being contingent on the number of years that they were contracted out. 

This bug came to my attention as I was considering making an additional voluntary Pension contribution (following the news item by Martin Lewis). According to my online National Insurance record I was one year short of contributions to receive a full state pension. I am 62. I tried to make an online voluntary contribution, but was directed to contact Future Pensions (FP) by telephone as I have been self-employed for the past 2 years.

I contacted FP to make the payment, but was advised that my history of national insurance contributions was incorrect as I had contracted out of SERPS in the past. Hence my online state pension forecast is incorrect. Apparently this happens "occasionally". I now have to wait for 8 weeks in order to receive a revised forecast which will be less than that online. Making a mess of any financial plans I have in place.

I am sure that there are many other people of my age who are in a similar situation, but have not contacted FP, or been contacted by them. FP have advised me that this is a known problem and that they are working to correct this in 5 year tranches. So if, like me you're 62 and had contracted out of SERPS in the past, then you should have been contacted by FP to advise you of this. Needless to say, they didn't contact me in May when I turned 62. SO it looks like they're behind in their processing of the records of individual.

In my opinion, this problem needs to be highlighted to all people who had contracted out of SERPS and are relying on the online State Pension Summary to plan their retirement income.

molerat

 Did they state exactly what the problem was?

tracyk23

Oh that might be me also. Can we contact FP directly to check - or have to go through HMCE first?

eskbanker

jjwarnes said:

According to my online National Insurance record I was one year short of contributions to receive a full state pension. I am 62. I tried to make an online voluntary contribution, but was directed to contact Future Pensions (FP) by telephone as I have been self-employed for the past 2 years.

Won't you be paying NI anyway this year or have you ceased this self-employment?  There may not be any benefit in paying one more year as a voluntary one if you'd be making mandatory contributions that would get you to the target....

Sarahspangles

I think MSE reported on this https://www.moneysavingexpert.com/news/2019/06/warning-to-double-check-state-pension-forecasts/

DRS1

What if you contracted out through an appropriate personal pension scheme - ie on a money purchase basis?  The article suggests it is only a worry if you contracted out via a defined benefit occupational pension scheme.

westv

First I've heard of this. 

Marcon

DRS1 said:

What if you contracted out through an appropriate personal pension scheme - ie on a money purchase basis?  The article suggests it is only a worry if you contracted out via a defined benefit occupational pension scheme.

Not quite what it says, but it's not a well written article, viz:

Sir Steve says that people with final salary pensions, who were "contracted out" of the second state pension when they were working, are particularly likely to be affected by the errors. This is where some of an individual's NI contributions were diverted into their workplace (or personal) pension, potentially reducing their state pension entitlement.

Either someone paid reduced NI and was 'contracted out' by virtue of their employment (and it was the employer, not the scheme, who held the contracting out certificate) and occupational pension scheme (which could have been either final salary or money purchase); or they paid full NI and part of this was then 'rebated' to a personal pension. 

molerat

westv said:

First I've heard of this. 

Looking at the linked article in 2019 less than 3% of those contracted out were affected so I suspect that figure is now much lower and not something that gets the headlines.

Sarahspangles

molerat said:

westv said:

First I've heard of this. 

Looking at the linked article in 2019 less than 3% of those contracted out were affected so I suspect that figure is now much lower and not something that gets the headlines.

There’s been more focus on correcting the underpayments of those already in receipt of their pension. I expect a progress update is nested in the DWP annual report somewhere. More recent coverage I could find was all the last but one minister and his replacement pointing the finger at each other.

DRS1

Marcon said: Either someone paid reduced NI and was 'contracted out' by virtue of their employment (and it was the employer, not the scheme, who held the contracting out certificate) and occupational pension scheme (which could have been either final salary or money purchase); or they paid full NI and part of this was then 'rebated' to a personal pension. 

Interesting.  You'd think it would be the rebate version which was the likely candidate for an over statement of the State Pension.
Anyway I topped up some years in 2022 and the FP person I spoke to did not mention any contracted out issue.  So it looks as if there is no need to worry if you contracted out via a personal pension scheme. Fingers crossed.