Why have I lost our due to private pension

Vizlady

I retired 2 years ago and had struggled to get a comprehensive answer to why I'm not getting a full pension despite 40 full years. Finally I've been told that its because I had a private pension for 12 years with Scottish Widows that was contracted out. ( 1998 to 2010)  i have managed to pay for 2 extra years ,plus a year for grand parenting , but im still 3 years shy. Why am i being penalised £28.58  a month for having a pension ? I can't even recall contracting out !

kinger101

Because some of the NI that would otherwise been paid to HMRC ended up in your private pension instead.  This would have increased the amount of SW pension you get.

molerat

You have not lost out.  You are one of the lucky ones that could increase your pension post 2016.  If the pre 2016 system had carried on you would have been stuck on that lower amount.

Ayr_Rage

It's the old scheme that was contracted out, you had no option as to how it was treated.

I was contracted out for most of my working life and needed 48 years to get the full state pension, which for me started last week.

As I retired at the age of 57 I bought 6 years to boost my SP.

MikeJXE

I remember it well, we were being encouraged to take on the contracted out route and be better off

Thankfully I never took the bait

Just like get a diesel car and save your money, that turned out well too 

Now it’s smart meters and EVs

Be careful what you wish for 

p00hsticks

As others say, you have not lost out. 

Pre-2016, having been contracted out,  you would have got the old 'basic' pension amount (currently £169.50), and paid less NI than someone contracted in. Instead yo uwoudl have paid money into the private Scottish Widows one. 
 
Now under the new rules you have had the opportunity to increase that your State Pension amount whilst still benefitting from your Scottish Widows one alongside. 

Vizlady

Thanks for your input everyone . Sadly I had to stop work in 2012, having gone from 40 hr week to under 16 due to ill health. Double whammy I couldn't claim DLA as hadnt paid NI due to reduced income and partner earned just over the limit for income related . Therefore I lost 10 years of NI credits due to being unable to work.so no benefit really under new rules in 2016! Stupidly I could have signed on and claimed UC but after doing so for 2 months I felt I could no longer sign a declaration each week saying i was fit and looking for work ! Due to this i had to cash in.my SW pension to get by to retirement age ( longer wait than expected as I'm a Waspi ). Seems being honest doesn't pay .

QrizB

Vizlady said:

Thanks for your input everyone . Sadly I had to stop work in 2012, having gone from 40 hr week to under 16 due to ill health. ... Seems being honest doesn't pay .

If State Pension is your only income, and you're receiving less than £200 a month, have you checked if you are eligible for Pension Credit?

If you aren't, is there any chance you can raise enough cash to buy some more missing years?

1957DfurdPensionist

Vizlady said:

I retired 2 years ago and had struggled to get a comprehensive answer to why I'm not getting a full pension despite 40 full years. Finally I've been told that its because I had a private pension for 12 years with Scottish Widows that was contracted out. ( 1998 to 2010)  i have managed to pay for 2 extra years ,plus a year for grand parenting , but im still 3 years shy. Why am i being penalised £28.58  a month for having a pension ? I can't even recall contracting out !

I could have retired nearly 2 years ago so we are in some ways in the same cohort, along with thousands of others I might add.

As you rightly point out, and like 99.99% of all who did I estimate, you can't even recall contracting out let alone what it meant.  There are reasons for this.  Unlike the suggested incentive described by others (of a lower NI contribution whilst contracting out) there were other more significant incentives at play at various junctures in the history of HMG's jolly wheeze of contracting out:
Starting in 1978, the first contracting out arrangements were made with the larger pension schemes such as civil service, local government, and major corporate schemes. Up until then and indeed subsequently right up until 2016, there were potentially two parts to your (non-contracted out) State Pension - and the second part has been variously called State Earnings Related Pension, State Second Pension, Additional State Pension.
The original intention behind the HMG wheeze was no doubt cost saving by outsourcing the necessary admin involved in working out individual members entitlements based on their earnings.  On the face of it, yes the actual employers paying the individual earnings were indeed likely to be the most efficient organisations for keeping track of earnings and thus of any additional earnings related pension due at retirement.  So far so good.  But how to transfer this liability to the pension schemes?  Easy - offer the employers a sweetener in terms of a reduced liability for paying employers NI for their pension scheme members.  Note I just said employers NI, not employees NI.

A safeguard to such outsourcing was (supposed to be) that HMG only did it with those schemes that would guarantee to at least match the additional pensions that were being outsourced into the employer's scheme.

This was the original Contracting Out, and before I describe the second tranche which came along around 9 or 10 years later, let us fast forward what happened to many of these schemes before 2004 if they still existed.  Many of them, mine included from my first workday in 1978, were excellent final salary schemes  In fact mine was a non-contributory scheme, part of my graduate starter reward package!  There was of course no discussion of contracting out, even though my employer as a major insurance company, was potentially well able to describe it.  There was no need was there? I had just started a fast-track graduate engagement with a very reputable insurance company - what was I to query when asked to sign up to their inhouse pension scheme?  They even gave me an in-house 100% mortgage at a brilliant low rate, and a company car within a couple of months.  In @molerat's parlance, I was surely one of the lucky ones back in 1978!  So there really was no need at age 21 to ask about the nitty-gritty of the non-contributory pension scheme, now was there?  Fast forward to now and ask that question again.  Erm ... where now is that outsourced additional state pension earned (started in 1978).  Very good question, eh?  And if, unlike me, and there are thousands this applies to, their wonderful final salary contracted out pension scheme was summarily wound up before 2004 for no reason other than the employer got tired of putting money into it for them, then what?  How on earth is the bit that was supposed to have been additional state pension been tracked and protected after the wound up funds were distributed to the wind, including back to employer's shareholders in some cases??  Answers on a very very big concertina postcard of some yards length I think!

So please forgive me @Vizlady, because I haven't yet got to the sort of contacting out that your Scottish Widows arrangement probably involved.  Let me explain then, the second tranche of contracting out as I know it, because like many of us our age who didn't stay in jobs for life, I ended up with some of tranche 2 contracting out (my words) also!

Around 1987, HMG via HMRC ran a campaign in cahoots with the typical insurance company pension providers of the day to get those insurance companies to sell Contracted Out arrangements to their SME clients.  I say around 1987 because I didn't actually become aware of the campaign until nearly two years later in 1989 when I was signed up at my new employer's premises by their favorite insurance company pension provider rep.  He wasn't from Scottish Widows.  He was from AXA Equity & Law.   And how did that campaign get presented to me? Thus:

• OK, this is your application form for membership of your employers Multi-pension scheme
• it is a DC scheme not a final salary DB type scheme
• Your employer has said they will put in 6% of your salary
• You are expected to put in 3% and should you wish, and extra up to 3% which the employer will match.
• The contributions go into our well respected With Profits fund and there is a small 1%pa management charge.
• OK?
• Yes?  Sign here.
• OK great!
• Now then - before I let you go, here's another single page form which costs you nothing, in fact there's free money from HMG if you sign!
• Oh how so?
• Well it's a SERPs replacement policy that runs alongside your employer's multipension scheme which you and around 150 colleagues are signed up to.
• And it doesn't cost anything?
• No in fact as a special campaign at the moment HMRC are backdating 2 whole years contributions just for signing up!
• Ah ok , but what contributions?  You said it doesn't cost anything?
• That's right, it is solely contributions from HMRC once a year for the contracting out.  The employer and you get a little reduction in your NI contributions and that reduction or maybe a little more is what HMRC redivert into this, your second policy which runs until you are no longer in a contracted out pension scheme.
• So two years backdated you say, and free money?
• Yep.  Sign here!

Now, @VizLady, your Scottish Widows arrangement started in 1998 which for all I know, could have been a tranche 3 variant of Ccontracting Out if you are only aware of it all being wrapped into a single insurance plan.  But was it presented in any real detail to you by the Scottish Widows rep?

There were a few years ago quite some misselling criticisms of persons who had been advised to buy into contracted out arrangements in those more recent years (more recent than mine).

Typically, the usual suspect third party pensions misselling claims firms ask the following sort of question:

Were You Mis-sold a SERPS Pension Plan?

If you think you might have been a victim of SERPS mis-selling, consider the following factors:

• Age: If you were aged over 40 (women) or 45 (men) at the time of advice, you have likely lost out by contracting-out.
• Salary: If your salary at the time of contracting-out was under £10,000 per annum, you have probably suffered a loss.

The sad facts are that there have been so many poorly controlled changes to many of our pension arrangements and sadly the management of the funds that insurance providers have been using to supposedly invest pension contributions in our best interests that there is no simple answer to your original question in this thread.

If you are able to tell us a little more about you Scottish Widows arrangement e.g. was it one policy or two, how much did you have to put into it yourself (if anything), and how much did HMRC put into it, has it ever been described as containing a Guaranteed Minimum Pension (if it started in 1998 then it won't contain GMP as that should have stopped in 1997).  Do you know the total contributions that went into it (you can ask) and have you started taking benefits from the Scottish Widows arrangement yet?  Various MSE forumite experts with knowledge better than my barrack-room offerings may be able to give you some extra views.  I could add some more but I think the above is more than enough for one afternoon!

Good luck with getting to the bottom of it.

1957DfurdPensionist

molerat said:

1957DfurdPensionist said:

Good luck with getting to the bottom of it.

Getting to the bottom of what ?

They were contracted out, have not paid any post 2016 contributions and withdrew all the contracted out pension.

Their only option to increase the pension is to purchase some post 2016 years.

I beg your pardon @molerat, but apart from the fact @Vizlady is likely to have been around 40 in 1998 when she was advised to take this arrangement, if I were her I'd anyway be looking at my Scottish Widows arrangement very closely and requesting both from Scottish Widows and from HMRC a note of the HMRC contributions into it, wouldn't you?  Or do you believe that persons of our age cohort have limitless pots of money to pay for VC's at £824 per year and should just believe all they are told eventually?  And because the funds were withdrawn is that a good professional's reason to forget any possibility of suing for bad advice??

Marcon

1957DfurdPensionist said:

molerat said:

1957DfurdPensionist said:

Good luck with getting to the bottom of it.

Getting to the bottom of what ?

They were contracted out, have not paid any post 2016 contributions and withdrew all the contracted out pension.

Their only option to increase the pension is to purchase some post 2016 years.

I beg your pardon @molerat, but apart from the fact @Vizlady is likely to have been around 40 in 1998 when she was advised to take this arrangement, if I were her I'd anyway be looking at my Scottish Widows arrangement very closely and requesting both from Scottish Widows and from HMRC a note of the HMRC contributions into it, wouldn't you?  Or do you believe that persons of our age cohort have limitless pots of money to pay for VC's at £824 per year and should just believe all they are told eventually?  And because the funds were withdrawn is that a good professional's reason to forget any possibility of suing for bad advice??

A little less emotion and a few hard (accurate) facts might be useful.

Vizlady said:

 i had to cash in.my SW pension to get by to retirement age ( longer wait than expected as I'm a Waspi ). 

Being able to withdraw the funds wouldn't even have been an option if the funds hadn't been in a private pension. 

1957DfurdPensionist said:

And because the funds were withdrawn is that a good professional's reason to forget any possibility of suing for bad advice??

Possibility of suing for bad advice? Forget it.You can't disregard what the funds would have been worth at state pension age had they been left in the private pension until then, which is what you are doing. 

There's no evidence the advice was bad at the time it was given and on the basis of the facts known at the time, added to which any claim is well and truly time barred.