Lgps - impact of being contracted out

rodney2012

i read a news article this morning about someone being contracted whilst in the forces and the impact on their state pension. 

This made me think about my LGPS pension. I took early retirement aged 61 two years ago. I hadn’t thought about impact of being contracted out on my state pension when I retire at 67. Although I do recall references to it I just didn’t think about it. Does this mean that my state pension will be significantly reduced at 67?

QrizB

Welcome to the forum.

What exactly does your State Pension forecast say? Not just the big green box, but directly underneath it?

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

molerat

The only way to find out is to check your forecast - have you done that ? https://www.gov.uk/check-state-pension

Contracting out only affected your 2016 starting amount, it reduced your new state pension amount earned up to that point.  You still had at least the basic pension you had earned under the old rules.

Contributions made post 2016 will have added to that amount.  Anyone reaching retirement from this April onwards should be able to reach the full amount, retiring only a couple of years ago could mean you are already there or may only need a small top up, it won't be "significantly reduced".

Marcon

Meanwhile keep your options open in terms of possibly topping up with voluntary NI (depending on your employment/pension scheme membership history): https://secure.dwp.gov.uk/request-a-call-back-to-pay-voluntary-national-insurance-contributions/contact-form

Silvertabby

rodney2012 said:

i read a news article this morning about someone being contracted whilst in the forces and the impact on their state pension. 

This made me think about my LGPS pension. I took early retirement aged 61 two years ago. I hadn’t thought about impact of being contracted out on my state pension when I retire at 67. Although I do recall references to it I just didn’t think about it. Does this mean that my state pension will be significantly reduced at 67?

You, me (also Armed Forces and LGPS) and many like us are the winners under the new pension scheme.  After years of paying reduced NI, which would have given us just the basic State pension under the old rules, we have enough time between 2016 and SPA to allow us to add to our pensions by working or paying voluntary NI contributions.

Far from looking at my original State pension as being 'reduced', simply because it was less than the new single tier pension, I celebrated being able to top it up to the full nSP rate by paying voluntary Class 3s.

In your case, as you worked for 6 or 7 years past 2016, your gap is probably not as bad as you think.  First thing to do is to check your current entitlement - as per the posts above.  If you do have scope for paying extra voluntary NI, then it's likely that only filling your post retirement gaps will actually add to your pension, so there's no need to join the stampede to pay voluntary NI before 5 April this year.  

dunstonh

This made me think about my LGPS pension. I took early retirement aged 61 two years ago. I hadn’t thought about impact of being contracted out on my state pension when I retire at 67. Although I do recall references to it I just didn’t think about it. Does this mean that my state pension will be significantly reduced at 67?

Contracting out via a DB pension (rather than a personal pension) meant you paid lower NI in your contracted out years and only qualified for the basic state pension (not SERPS, S2P etc).   However, the DB scheme made up the difference.

However, contracting out was abolished over a decade ago and you have built entitlement under the new state pension.   So, you are a winner under the new arrangements.   i.e. you will get a higher amount as you retain your contracted out benefits via the DB pension and paid lower NI but will get a higher new state pension than the basic state pension you would have got had the rules not changed.

xylophone

Contracting out via a DB pension (rather than a personal pension) meant you paid lower NI in your contracted out years and only qualified for the basic state pension (not SERPS, S2P etc)

Depending on earnings, it was possible  for a person who was contracted out to accrue some S2P.

https://en.wikipedia.org/wiki/State_Second_Pension

Contracting out ended for DC schemes over a decade ago (6/4/12) but for DB schemes just nine years ago (6/4/16).

https://techzone.abrdn.com/public/pensions/Tech-guide-contracting-out