Income drawdown vs annuity purchase at retirement

jamesd

jem16 wrote: »

This seems to be a grey area in forecasts. I've always been contracted out so only have something like 42p graduated retirement. I've no SERPS or S2P. My state pension forecasts make no mention at all of a contracted out deduction. I basically have the full basic state pension plus 42p.

Yes, it's a grey area that I think harms those who have a lot of time in contracted out DB schemes by giving them a false impression that they will get more state pension than they really will get. After the flat rate is introduced at least that problem should go away.

At least we know that your state pension statement and mine are accurate. Well, unless one of us received child benefit which I think still isn't factored into the statements...

coyrls

jamesd wrote: »

Yes, it's a grey area that I think harms those who have a lot of time in contracted out DB schemes by giving them a false impression that they will get more state pension than they really will get. After the flat rate is introduced at least that problem should go away.

At least we know that your state pension statement and mine are accurate. Well, unless one of us received child benefit which I think still isn't factored into the statements...

I'm very confused about all this. I am 58 and so I will be eligible for my state pension in 2022 under the new scheme.

My online state pension forecast says that so far I have 36 qualifying years and that my additional state pension based on my NI contributions to date is £60.24 a week. The forecast for my additional state pension amount seems to be going up, a statement for the previous tax year was for £59.14 a week.


However I was contracted out to a personal pension (minimum contributions) from March 1989 to November 1990 and then from November 1990 to July 2000 I was contracted out in an employer’s defined contribution scheme. I was contracted back in from July 2000.


Is there any way that I can work out what my state pension will be under the new scheme?

jem16

jamesd wrote: »

At least we know that your state pension statement and mine are accurate. Well, unless one of us received child benefit which I think still isn't factored into the statements...

I did have child benefit but no mention of it on my statement. However I have more than enough NI contributions for it not to make any difference.

My only grey area is that I'm entitled to inherit some SERPS/S2P from my late husband and this is mentioned on my statement. I'm rather surprised by this bit as for the majority of his working life he was also in a DB pension which I'm pretty sure was contracted out. I'm not relying on this bit though as it says it's an extra £40pw and I can't see it being correct.

jamesd

coyrls wrote: »

However I was contracted out to a personal pension (minimum contributions) from March 1989 to November 1990 and then from November 1990 to July 2000 I was contracted out in an employer’s defined contribution scheme. I was contracted back in from July 2000.

The personal pension time will be accurately shown on the state pension statement.[STRIKE] To adjust for the defined benefit time use (total working years - 10) / (total working years) times whatever the statement says about the additional state pension amount. That will probably understate how much additional state pension you will get but it'll give you a useful idea for planning.[/STRIKE]

jamesd

jem16 wrote: »

My only grey area is that I'm entitled to inherit some SERPS/S2P from my late husband and this is mentioned on my statement. I'm rather surprised by this bit as for the majority of his working life he was also in a DB pension which I'm pretty sure was contracted out. I'm not relying on this bit though as it says it's an extra £40pw and I can't see it being correct.

I almost completely lack knowledge of this but my guess is that he hadn't yet reached state pension age so the contracted out deduction for the ASP hasn't been done yet, as usual. You might get a reliable foundation amount calculation, though.

greenglide

coyrls wrote: »

I'm very confused about all this. I am 58 and so I will be eligible for my state pension in 2022 under the new scheme.

My online state pension forecast says that so far I have 36 qualifying years and that my additional state pension based on my NI contributions to date is £60.24 a week. The forecast for my additional state pension amount seems to be going up, a statement for the previous tax year was for £59.14 a week.


However I was contracted out to a personal pension (minimum contributions) from March 1989 to November 1990 and then from November 1990 to July 2000 I was contracted out in an employer’s defined contribution scheme. I was contracted back in from July 2000.


Is there any way that I can work out what my state pension will be under the new scheme?

Since you have a full state pension under the current scheme and an amount of AP currently to get you over the STP standard amount you will get at least all of the amount on the forecast plus any further AP earned over the next 2 years all index linked. The fact you have been contracted out for part of your working life will make no difference as your starting amount will be higher under the current rules.

So the current value is around £173 per week.

coyrls

greenglide wrote: »

Since you have a full state pension under the current scheme and an amount of AP currently to get you over the STP standard amount you will get at least all of the amount on the forecast plus any further AP earned over the next 2 years all index linked. The fact you have been contracted out for part of your working life will make no difference as your starting amount will be higher under the current rules.

So the current value is around £173 per week.

The issue as I understand it is that the forecast doesn't take into account the period where I was contracted out under an employer's pension scheme and so is wrong.

coyrls

jamesd wrote: »

The personal pension time will be accurately shown on the state pension statement. To adjust for the defined benefit time use (total working years - 10) / (total working years) times whatever the statement says about the additional state pension amount. That will probably understate how much additional state pension you will get but it'll give you a useful idea for planning.

Thanks for the reply. I can see the logic in the calculation. There are some points that I want to get clear:


I was contracted out under an employer’s defined contribution scheme; not a defined benefit scheme, does this make a difference, or are both contracted out DC and DB schemes not included when contracted out periods are applied to the pension forecast?


My understanding is that I will get the higher of my entitlement under the current scheme at April 2016 or my entitlement under the new scheme in 2022 (when I reach the state pension age).


When my entitlement at April 2016 is calculated, will my 2016 entitlement be index linked to 2022, or will it be “frozen” at the 2016 value? When my entitlement under the new scheme is calculated, there will be a reduction to take account of the period where I was contracted out. Do we know how that reduction will be calculated?

jamesd

Sorry, I misread that. The state pension statement value will be correct. Defined contribution and personal pension are both correct on the statement. It's only the defined benefit types that aren't.

In 2016 your foundation amount will be calculated as the higher of the current or new rules amounts. From then on any increases will use the flat rate rules. If you are at or above the flat rate level you'd continue to increase the amount under current rules but that will cease under flat rate rules, so you'd just get the foundation amount and nothing more in this case.

The 2016 entitlement will be calculated at 2016 rates. Then index-linking will be applied from then until you start to get it and beyond. Also any extra entitlement for more years worked between then and state pension age will be added.

jem16

jamesd wrote: »

I almost completely lack knowledge of this but my guess is that he hadn't yet reached state pension age so the contracted out deduction for the ASP hasn't been done yet, as usual.

Long way off state pension age I'm afraid so I expect you're correct.

You might get a reliable foundation amount calculation, though.

One can hope. I'm really just expecting my own and not much to inherit.