Contracted out of SERPS but still in line to get full state pension

drcarrera

I know this subject has been covered loads of times but despite looking through various other threads I'm still not entirely sure about the relationship between SERPs and the new state pension!
I was contracted out of SERPS for around ten years in the 80s/90s but my pension forecast on the Government Gateway says I will be entitled to the full amount of £221.20 (now I've topped up one extra year).  The years I was contracted out are still shown as "Full Year" on my record. 
I'm struggling to understand why, having contracted out, I'm entitled to the same pension as if I hadn't!

Cobbler_tone

I'm exactly the same. I generated £25k into an old Royal Sun Alliance scheme. I remember the guy coming in and saying "sign here" when I was 17. 
People who contracted out of SERPS in the 1980s still receive a state pension because they built up a protected rights pension. This pension is based on the money that would have gone into SERPS if they hadn't contracted out.

My father-in-law gets £1,600 a month state pension.

DRS1

Would it help to think of SERPS as sitting on top of the basic state pension?  By contracting out you were out of the top up bit but still got the basic bit.
I don't claim to know anything about the 2016 switch but I think that if you had been contracted in you would be in line to get more than £221.20 per week (something called a protected payment?).

Linton

In your case the contracted-in and post 2016 years outweighed any contracted-out deduction.  Cintracted-in pre-2016 NI years could give you well above the standard SP.

pinnks

Cobbler_tone said:

People who contracted out of SERPS in the 1980s still receive a state pension because they built up a protected rights pension. This pension is based on the money that would have gone into SERPS if they hadn't contracted out.

My father-in-law gets £1,600 a month state pension.

I am not sure I understand or agree with your comment.  The old pension rules had 2 elements - a basic pension based on up to 30 NI years and "additional" pension from SERPS etc, unless you contracted out and instead paid into that other pension. So at pension age you got either a basic pension plus additional pension, or a basic pension plus your contracted out pension.

So your first paragraph makes no sense, sorry.

If your FIL gets £1,600 every 4 weeks (the pension is not paid monthly), then that would be more than the maximum of the old basic and additional pensions put together, which is currently £169.50 and about £218 for additional pension, making just short of £390 per week maximum.
 

molerat

Everyone retiring from April 2025 with a full NI history will receive the full new pension even if contracted out, simple maths.

pinnks

If you were contracted out it is common that your starting amount for the new state pension is equal to the maximum old basic pension, which is currently £169.50 per week.  If you have then paid, or been credited with NI for 9 full years 2016/17 to 2024/25, or later years too, then you will receive the new maximum. 

drcarrera

molerat said:

Everyone retiring from April 2025 with a full NI history will receive the full new pension even if contracted out, simple maths.

Yes but I still don't really understand why the years I was contracted out still count as "full". Or is it that I paid above a certain amount if NI as I was earning quite well so they count anyway?

Looking at it another way, if I hadn't contracted out and was entitled to the same amount of pension as someone who had contracted out and received thousands into their private pension as well I might consider that a tad unfair (although I'm not complaining!).

Marcon

Cobbler_tone said:

I'm exactly the same. I generated £25k into an old Royal Sun Alliance scheme. I remember the guy coming in and saying "sign here" when I was 17. 
People who contracted out of SERPS in the 1980s still receive a state pension because they built up a protected rights pension. This pension is based on the money that would have gone into SERPS if they hadn't contracted out.

Contracting out applied to the Additional State Pension (SERPS, then the State Second Pension). You couldn't contract out of the basic state pension, and your protected rights fund* sits on top of the entitlement to basic state pension.

*although protected rights were broadly abolished from 6 April 2012, and just became ordinary rights, with none of the previous restrictions about how they had to be used

Cobbler_tone

pinnks said:

Cobbler_tone said:

People who contracted out of SERPS in the 1980s still receive a state pension because they built up a protected rights pension. This pension is based on the money that would have gone into SERPS if they hadn't contracted out.

My father-in-law gets £1,600 a month state pension.

I am not sure I understand or agree with your comment.  The old pension rules had 2 elements - a basic pension based on up to 30 NI years and "additional" pension from SERPS etc, unless you contracted out and instead paid into that other pension. So at pension age you got either a basic pension plus additional pension, or a basic pension plus your contracted out pension.

So your first paragraph makes no sense, sorry.

If your FIL gets £1,600 every 4 weeks (the pension is not paid monthly), then that would be more than the maximum of the old basic and additional pensions put together, which is currently £169.50 and about £218 for additional pension, making just short of £390 per week maximum.
 

So for the pedant £390 x 52/12 £1,690 a month (there or thereabouts), I was a bit short....I don't get paid it and not aware of his method and frequency of collection, nor the exact amount. 
 
Poor turn of phrase on the first part but I've lived it and know how it works, despite clearly having no clue at 17!
I've transferred the private pension into my other DC and get the full state pension at 67. In terms of the number of fully funded, consecutive years, this is 40 for me. 

molerat

drcarrera said:

molerat said:

Everyone retiring from April 2025 with a full NI history will receive the full new pension even if contracted out, simple maths.

Yes but I still don't really understand why the years I was contracted out still count as "full". Or is it that I paid above a certain amount if NI as I was earning quite well so they count anyway?

Looking at it another way, if I hadn't contracted out and was entitled to the same amount of pension as someone who had contracted out and received thousands into their private pension as well I might consider that a tad unfair (although I'm not complaining!).

Whilst contracted out you accrued "full" years for the basic state pension, you were contracted out of the second state pension / additional pension. In 2016 you were given the higher of the calculations for the new or old schemes.  If your calculation was at or above the new pension amount you kept it but could not increase it, if below you could add to it with post 2016 contributions up to that amount.  Under the old scheme you could get as much as £387.90.