State Pension - my wife’s is much higher than mine???

MikeFloutier

Hi guys, I think I know the answer but just wanted to double check…

My wife has just started drawing her state pension at age 66 (not delayed).

I reached SPA in 2019 and was contracted out of SERPS in my Barclays DB scheme until I went self-employed in 1995. My NI record shows 49 “full” years. I topped up all my “missing” years’ before SPA.

Now, my state pension is £796, whereas my wife’s is £931. 

I assume this is due to me having opted out but it seems quite a big difference so I just wanted a reality check.

Many thanks!

Kind regards, Mike 

Dazed_and_C0nfused

MikeFloutier said:

Hi guys, I think I know the answer but just wanted to double check…

My wife has just started drawing her state pension at age 66 (not delayed).

I reached SPA in 2019 and was contracted out of SERPS in my Barclays DB scheme until I went self-employed in 1995. My NI record shows 49 “full” years. I topped up all my “missing” years’ before SPA.

Now, my state pension is £796, whereas my wife’s is £931. 

I assume this is due to me having opted out but it seems quite a big difference so I just wanted a reality check.

Many thanks!

Kind regards, Mike 

I would say it's because your wife had longer to add post 2016 years.  Your ability to reach the standard "new" State Pension was limited by you reaching SPA in 2019.

She has had another 5/6 years to add to hers.  And is it really £931, not £921 🤔

Providing you bought all available post 2016 years there is probably nothing you can do to change things.

LHW99

If you search the forum you will find many threads discussing this question.

If you contracted (not opted) out, your starting point for the New State Pension in 2016 will, probably, have been lower than your wife's.

Contracting out into the Barclays DB scheme meant you paid a lower NI rate for those years until contracting out was abolished because it promised a pension at least as good as the state pension amount you would give up (I think it would have been designated as GMP).

In any case, you would have only paid NI earning NSP for 3 years, 2016 - 2019, whereas your wife will have paid 2016 - 2024. That gave her a chance to increase her SP beyond yours.

p00hsticks

MikeFloutier said:

My wife has just started drawing her state pension at age 66 (not delayed).

I reached SPA in 2019 and was contracted out of SERPS in my Barclays DB scheme until I went self-employed in 1995. My NI record shows 49 “full” years. 

At a guess...

Only a maximum of 35 of those pre-2016 years will have counted towards your 'Starting Amount' as at April 6th 2016 (the old rules used a maximum of 30 years, the new rules use 35).

Having been contracted out there would have been no SERPS/S2P and presumably a large COPE so your starting amount will have been equivalent to the old 'basic' State Pension - currently £176.45 a week.

I'm guessing your birthday is after April 5th, which means you will have been able to add three post 2016 years to that starting amount, which would have added 3/35ths of the New state Pension amount to that - 3 x 6.58, taking your total to £196.19 a week. 

Your wife will have been able to continue adding additional post-2016 years to her record, with each one increasing her starting amount by £6.58 until she reached the maximum of £230.25 a week

dunstonh

I reached SPA in 2019 and was contracted out of SERPS in my Barclays DB scheme until I went self-employed in 1995. My NI record shows 49 “full” years. I topped up all my “missing” years’ before SPA.

So, you entitlement was were either contracted out or had self employment (which only qualified for the basic state pension).
Almost certainly, you are a winner under the changes.  You would have been at £705.80 under the old method but you get higher than that.

You haven't given us your wife's employment history in terms of contracting in or out or self employment or employment or HRP.

xylophone

Your starting amounts (aka Foundation Amounts ) for NSP were individually calculated on your personal  NI records.

On 6/4/16 the following calculations were done for each of you - the SA was the higher of the two.

 (A) Old Rules

NI Qualifying Years/30 (max) x Full Basic (£119.30) + (Additional State Pension - Deduction for Contracting Out)


(B) New Rules

{NI Qualifying Years/35 (max) x Full NSP (£155.65) } - Contracted Out Pension Equivalent (aka Rebate Derived Amount).


If the SA were equal to the full NSP, while (if under SPA and earning the relevant amount) the individual would be required to continue to

pay NI up to SPA, he/she could not improve it - the amount would increase each year under the pension indexing rules (currently triple lock).


If greater  than full NSP, while (if under SPA and earning the relevant amount), the individual would be required to continue to

pay NI up to SPA, he/she could not improve it - the amount equal to full NSP would increase each year under the pension indexing rules

(currently triple lock) and the balance ( the "protected payment") by CPI.


If the SA were less than the full NSP, there was the possibility  (depending on personal circumstances ) of improving the SA up to (but

not in excess of) a full NSP with contributions/credits to make qualifying years.


https://assets.publishing.service.gov.uk/media/5a7a21fd40f0b66a2fc00201/single-tier-pension-fact-sheet.pdf


https://assets.publishing.service.gov.uk/media/5a7c2e95e5274a25a9140fdc/single-tier-valuation-contracting-out.pdf

MikeFloutier

Thanks guys, I did think it was all correct. I guess what made me question it was seeing mine and my wife’s first full 4 weekly pension payments, side by side, on the bank statement, showing such a big difference.

I was interested to see how much I had saved, over the years, by opting out. 

The basic 1.6% (approx) reduction in my NIC looks fairly negligible but I noticed that there was also something “known as 'age related rebates' and ranged from 3.0% to 7.4% (less the 3.0% basic rebate)” which were said to be added to my DB scheme. I’m assuming that this, plus my contractual 7% annual increases (not an inconsiderable amount, in practice), is what made up my Guaranteed Minimum Pension (GMP)

OK, this is interesting, I just checked gov.uk which confirms this. What started as a fairly small sum (my GMP) has contractually morphed, over many years, into what is now over £9,000 pa. which, if this 'age related rebates' is the only source of my GMP, makes my £1750 pa State Pension “deficit” look quite a bargain.

Thanks again!

DRS1

I thought age related rebates were only for protected rights not GMPs.

MikeFloutier

Thanks DRS1, to be honest I know nothing about “protected rights”. But this page from gov.uk definitely seems to imply that this is where some, if not all, of my GMP comes from. It also could explain why Barclays fought so hard to avoid including most of it from my pension. https://www.gov.uk/government/publications/new-state-pension-if-youve-been-contracted-out-of-additional-state-pension/guaranteed-minimum-pension-gmp-and-the-effect-of-the-new-state-pension

xylophone

See

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

Under

Contracting out and NI contributions

DRS1

MikeFloutier said:

Thanks DRS1, to be honest I know nothing about “protected rights”. But this page from gov.uk definitely seems to imply that this is where some, if not all, of my GMP comes from. It also could explain why Barclays fought so hard to avoid including most of it from my pension. https://www.gov.uk/government/publications/new-state-pension-if-youve-been-contracted-out-of-additional-state-pension/guaranteed-minimum-pension-gmp-and-the-effect-of-the-new-state-pension

I think @Xylophone's link explains the different types of contracting out and where protected rights fit into it. 

If you have seen references to age related rebates then maybe you were contracted out on a money purchase basis at some point - but that would not have given you any GMP.