State Pension Deduction

Storcko14

I was contracted out when a member of a DB scheme in the late 1980s/early 90s which I understand will reduce my DB pension.  On current forecasts from the scheme admin that'll be by about 7-8%.  Two questions:

1) If I defer taking the SP will that also defer the SPD?
2) According to my SP record I can't improve my SP forecast and this has been the case for the last 5 or 6 years.  Do any NI contributions made above that required for the full SP reduce the SPD?  

dunstonh

I was contracted out when a member of a DB scheme in the late 1980s/early 90s which I understand will reduce my DB pension.

No.  Contracting out of SERPS/S2P means that your overall state pension entitlement will be lower but this is compensated for by the DB scheme paying more.

1) If I defer taking the SP will that also defer the SPD?

SPD = state pension deduction?
if so, then no.   You don't have a deduction.  Your figures are a qualification rather than a deduction.  you had a lower qualification but you have met the current maximum entitlement.

2) According to my SP record I can't improve my SP forecast and this has been the case for the last 5 or 6 years.  Do any NI contributions made above that required for the full SP reduce the SPD?  

If you already have sufficient years to have the NSP maximum, then you don't get any more.  

Storcko14

Thanks @dunstonh - you've provided clarity that I failed to get from the scheme admin who provided a state pension deduction figure both at date of leaving the scheme (1990) and a revalued figure.  However they could not / would not explain how it's applied.

DRS1

I suspect your scheme has a deduction from your pension based on you getting a state pension.  That has nothing to do with contracting out but is something some schemes did for benefit design reasons.  It could be seen as integrating with the state pension so you'd get more before the state pension kicked in and less afterwards (but on the presumption that your aggregate scheme and state pension would be roughly the same as you were getting from the scheme before you got the state pension).  I hope that makes sense.

As I recall NatWest had such a scheme - maybe other banks too.

I have a nasty feeling the deduction may kick in from your old SPA (60/65) but I am not sure.  I doubt if it gets put off if you defer taking the state pension.  

p00hsticks

Storcko14 said:

Thanks @dunstonh - you've provided clarity that I failed to get from the scheme admin who provided a state pension deduction figure both at date of leaving the scheme (1990) and a revalued figure.  However they could not / would not explain how it's applied.

@Storcko14  I'm not sure if @dunstonh may possibly have misinterpreted your initial post as referring to the State Pension ? There are numerous posts on this board asking if peoples state pension would be reduced due to previously being contracted out, and dunstonh's replies are correct for this scenario. 

However, as DRS1 states, there are some DB pensions where the DM amount paid reduces at a point when the person reaches state pension age (or possibly earlier if the scheme rules have a fixed age baked in). Is this what you are asking about ? 

dunstonh

@Storcko14  I'm not sure if @dunstonh may possibly have misinterpreted your initial post as referring to the State Pension ? There are numerous posts on this board asking if peoples state pension would be reduced due to previously being contracted out, and dunstonh's replies are correct for this scenario. 

Indeed, I did reply on that basis. However, it does appear that it could be a bridging pension that is being referred to.

The irony of wording is that the bridging pension is often referred to as a temporary higher level of pension until SPA, rather than a reduction at SPA.    A glass half full/half empty point of view I suspect.

Storcko14

DRS1 said:

I suspect your scheme has a deduction from your pension based on you getting a state pension.  That has nothing to do with contracting out but is something some schemes did for benefit design reasons.  It could be seen as integrating with the state pension so you'd get more before the state pension kicked in and less afterwards (but on the presumption that your aggregate scheme and state pension would be roughly the same as you were getting from the scheme before you got the state pension).  I hope that makes sense.

As I recall NatWest had such a scheme - maybe other banks too.

I have a nasty feeling the deduction may kick in from your old SPA (60/65) but I am not sure.  I doubt if it gets put off if you defer taking the state pension.  

Ah it does make sense thanks @DRS1 now that I think about the quotes I got from the scheme.  It's one of the now merged UK bank schemes and my question was one of several that I asked the scheme admin since I couldn't understand my pension quote.  In summary, this was higher if I retired pre 60 (NRD) than at 60 and then had a significant step up if i deferred until 65 (in fact it doubled between 64 and 65).  After several emails back and forth over too many weeks and some help on here, I managed to conclude that it was probably due to the impact of GMP in their calculations.  My state pension reduction question remains unanswered or being avoided so I my spreadsheet assumption is that either the DB or my SP forecast will drop a bit at 65 (7 or 8% by my calcs). 

It isn't massively important for me as it's only about 5% of my retirement income but it is - SP aside - the only guaranteed bit.  I'm surprised that the scheme admins have such difficulty providing answers though since there must be thousands in the same boat.

DRS1

I don't claim to understand the pre 60/60 or 64/65 differences but if you say it is down to GMPs then fine.  GMPs are not as simple as I think they ought to be.

As for the state pension deduction I don't think you should expect your SP forecast to change.  As for the DB pension under the scheme it may help to get hold of the member's booklet or the rules for your section of the scheme and see what that says on the subject.  The rules will be determinative but the booklet may be easier to understand.

As for the scheme administrators I think they may not be familiar with your section of the scheme - especially if it has been merged into another scheme with different rules.  Sometimes (as with LGPS) you have administrators who only deal with one scheme and so they become familiar with all that scheme's quirks.  Other times you have people who deal with several different schemes and they have to look things up or may not know oh yes that is how we deal with that thing.

xylophone

I think that there is some confusion here.

Let's start with contracting out.

You were a member of a defined benefit occupational pension scheme between 1978/1997. It was "contracted out" of the additional state pension then called State  Earnings Related Pension Scheme.

This meant that you and your employer paid a lower rate of National Insurance so that your contributions qualified you for only the old rules  Basic State Pension.

However, the scheme had to guarantee that at age 60 (F) /65 (M), you would receive a pension that was at least as great as you would have received had you remained contracted in to SERPS. 

You will note that Guaranteed Minimum Pension age used to align with State Pension  Age but no longer does.

As a sweetener to employers, the state originally agreed that from GMP age, it would pay index linked increases on the GMP part of the occupational pension with the State Pension.

After a few years, this promise was watered down to the extent that the state would index link the whole of the pre 88  GMP but the Scheme would have to index link the 88/97 GMP up to 3% RPI (CPI) after which the state would pick up the tab.

The necessary calculation would be made when the state pension came into payment. An entry on the statement of benefits would show  the amount of SERPS that would have been earned had the person remained contracted in. From this was made a deduction for contracting out. What remained was the amount to be index linked thereafter.

This arrangement came to an end with the inception of New State Pension.

With regard to the occupational pension, from GMP age, the scheme had (and has) no obligation to pay increases on that part of the pension representing pre 88 GMP and only up to 3% on post 88 GMP

On 6.4.16, two calculations were done  to establish each individual's "starting amount" for NSP. It was the higher of

OLD RULES

NI Qualifying Years/30 x Full Basic SP + ( Additional State Pension - (if applicable) Deduction for Contracting Out).

NEW RULES

(NIQY/35 x Full NSP)  - (if applicable) Contracted Out Pension Equivalent.

The individual would have been in one of three positions.

(a) SA equal to full NSP.

(b) SA more than full NSP.

(c) SA less than full NSP

In the case of (c), there was the possibility of improving the SA up to (but not in excess of) a full NSP by future contributions or credits.

For example, many people who had been contracted out had a starting amount less than a full NSP but still a number of years to work before SPA.

Their QY from 6/4/16 to the last full year before SPA would improve their  state pension position.

To turn now to the State Pension Deduction,  this has nothing to do with contracting out.

See links in this post

https://forums.moneysavingexpert.com/discussion/comment/68250296/#Comment_68250296

hyubh

Storcko14 said:

I was contracted out when a member of a DB scheme in the late 1980s/early 90s which I understand will reduce my DB pension.  On current forecasts from the scheme admin that'll be by about 7-8%.  Two questions:

1) If I defer taking the SP will that also defer the SPD?
2) According to my SP record I can't improve my SP forecast and this has been the case for the last 5 or 6 years.  Do any NI contributions made above that required for the full SP reduce the SPD?  

What xylophone says. Other than that - is this a Midland section of the HSBC DB scheme...? There's no point being coy, each DB scheme's rules are different...

Marcon

Storcko14 said:

Thanks @dunstonh - you've provided clarity that I failed to get from the scheme admin who provided a state pension deduction figure both at date of leaving the scheme (1990) and a revalued figure.  However they could not / would not explain how it's applied.

I think one of the problems in pensions isn't just understanding an answer, it's knowing how to phrase a question (or even knowing that there's a question to ask), so that what you ask is what the other party 'hears' and replies to. In fairness to the administrators, they seem to have give you the relevant figures based on what they believe you asked (and possibly what you actually asked) but there was clearly no real meeting of minds....