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GMP confusion

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  • hogweedhogweed Forumite
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    IanSt wrote: »
    I assume many of those 45 years were when you were in a contracted out pension scheme, so you were paying less in national insurance contributions than someone on the same pay who was not.

    I take it that you would not count it as fair if someone paying a smaller amount of national insurance got the same benefits as someone paying the full amount.

    Well, as I understand it, everybody gets the same basic state pension as long as their employer pays their NI contributions – so somebody earning £15k a year for life gets the same as somebody who earns £50k.


    Are you telling me I’m wrong about this??
  • LHW99LHW99 Forumite
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    hogweed wrote: »
    Thanks people – that’s very useful. I knew I was being stitched – just no necessarily by whom.


    Worse than that – I’ve just been told by HMRC or whatever they call themselves that, despite my having 45 years’ paid up NI contributions, I have to give them another something like £1500 to get the full state pension.


    The only consolation is that it’s a long time since anybody even bothered to try and maintain the illusion of fairness in our society, so I don’t expect it :(
    The thing is, by being contracted out you:
    a) paid less NI (than someone contracted in)
    b) got a pension from the employer you worked for - the GMP was supposed to cover the difference between the old SP's likely to be earned by each type
    c) have a chance to buy added post 2016 years that would give you extra SP that will be index linked for life.
  • IanStIanSt Forumite
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    hogweed wrote: »
    Well, as I understand it, everybody gets the same basic state pension as long as their employer pays their NI contributions – so somebody earning £15k a year for life gets the same as somebody who earns £50k.


    Are you telling me I’m wrong about this??

    You are indeed - but you won't be the first (or the last) :)

    Someone who has been in a contracted out pension scheme has paid less towards the state pension than someone on the same pay who was not in a contracted pension scheme.

    The following comes from the government web page https://www.gov.uk/government/publications/state-pension-fact-sheets/contracting-out-and-why-we-may-have-included-a-contracted-out-pension-equivalent-cope-amount-when-you-used-the-online-service#the-contracted-out-pension-equivalent-cope
    So, although you may not have realised this, when you were contracted out, depending on the type of pension scheme(s) you belonged to during the period(s) you were contracted out, either:

    you and your employer paid NI at a lower rate than the full standard rate, or

    some of the NI contributions you paid were used to contribute to your private pension instead of the additional State Pension

    Contracting out finally ended on 6 April 2016, and this means that all employees now pay the same rate of NI. If you have been contracted out in the past, we need to take account of this in the amount of new State Pension you get. Do not forget that when you were contracted out, you were building a workplace or personal pension(s) instead of the additional State Pension you were opted out of.
  • uk03878uk03878 Forumite
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    You can verify your contracted out times by writing to the NISPI
    I wrote about 4-5 weeks ago and received a very detailed reply of the times I was contracted out
    They also stated the times I was contracted out but then contracted back in again. Forces Pension - didn't stay in long enough to have one so I have a note that says CEP has been paid.
    The information that I needed and who to write to all came from this forum - excellent resource
  • SilvertabbySilvertabby Forumite
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    “ Well, as I understand it, everybody gets the same basic state pension as long as their employer pays their NI contributions – so somebody earning £15k a year for life gets the same as somebody who earns £50k.

    Are you telling me I’m wrong about this??
    Originally posted by hogweed
    That will be correct in the future - ie, once we have passed the transitional introductory period for the new single tier pension.

    Then, although someone on £50K per year will pay more NI than someone on £15K per year, assuming that they both have 35 years of NI contributions then both will get the same State pension.

    It used to be that the State pension was split into two parts - the basic pension that everyone received, and earnings related additional (SERPS/SP2). A high earner (who had never been contracted out of SERPS/SP2) could accrue a State pension of as much as £302 per week, whereas the low earner may only have accrued half of that.

    Of course, in the case of our fictional future £50K/£15K earners the higher paid worker will be much more likely to pay into a works/private pension scheme, and so will have additional retirement income from that.
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  • xylophonexylophone Forumite
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    See post 23 here

    https://forums.moneysavingexpert.com/showthread.php?t=4532605&page=2 for an old scheme explanation.

    You reach SPA under the new scheme.

    At 6/4/16, two calculations were done - it appears that at that date you had 35 years plus NI years.

    Thus

    Old Scheme (which required 30 years for full Basic State Pension which was £119.30 for 2016-17)

    £119.30 + (Additional State Pension - deduction for contracting out)

    New Scheme (which requires 35 years for full NSP, £155.65 for 2016-17)

    £155.65 - Contracted Out Pension Equivalent.

    Your starting amount was the higher of the two.

    You were under state pension age so could increase your NSP by contributions or credits up to SPA.
  • DairyQueenDairyQueen Forumite
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    xylophone wrote: »
    Well, from the previous link, you will see how indexing works on the old state pension (but you will also note the situation of those who ended up with a COD greater than their ASP).

    With regard to the new state pension, I think we've already been in discussion about how the "starting amount" was calculated.

    If you come under the NSP, then all of your pension up to a full NSP is index linked (currently) under the triple lock - any amount over is a "protected payment" and is index linked under CPI.

    Clearly, there is some ASP within the NSP and to the extent that this is the case, under the triple lock the pensioner is getting at least CPI or better.

    The same comment as above applies as regards CPI/RPI though!

    Those worst affected by the change to the NSP were those occupational pensioners with a GMP who were very close to SPA at the time of the changeover.

    They may well have had high COD/COPE which meant that they received much less than a full NSP with no chance to improve their starting amounts.

    They would then miss out on indexation of pre 88 GMP altogether and would receive only up to 3% on post 88 GMP through their occupational schemes.

    See https://www.nao.org.uk/wp-content/uploads/2016/03/The-impact-of-state-pension-reforms-on-people-with-Guaranteed-Minimum-Pension.pdf

    Those in receipt of Public Service Scheme pensions have been protected from this (at least up to those retiring in 2021).

    See https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN04956
    Thankyou. I think I understand this now. So, under the nSP, those with GMP who are also able to qualify for the full amount before SPA, will effectively replace their GMP indexation with CPI indexation on a higher basic SP. This is achieved by the opportunity to accrue basic SP beyond what they would otherwise have received under the old system.

    Therefore, those who had a high GMP at the starting point (and a correspondingly high COPE amount) could have their starting amount reduced to a point where it is impossible to increase their basic nSP (which is all index-linked) up to the equivalent of the extra pension they will receive from the GMP scheme (which is zero or max 3% index-linked). The difference will not be index-linked. Is this correct?

    Also, what happens to those whose who accrued pre 88 GMP but whose starting amount was more than the max nSP? Typically, these people would have been contracted out early in the working lives and then contracted in for a substantial period more recently when they enjoyed higher earnings. The high ASP they had accrued under the oSP is protected and is all index-linked. However, under the oSP, they would also have received an additional amount p.a. as indexation of their GMP. Have these people now foregone indexation on this additional amount?

    Hope that makes sense and sorry to keep asking so many questions.
  • xylophonexylophone Forumite
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    Thankyou. I think I understand this now. So, under the nSP, those with GMP who are also able to qualify for the full amount before SPA, will effectively replace their GMP indexation with CPI indexation on a higher basic SP. This is achieved by the opportunity to accrue basic SP beyond what they would otherwise have received under the old system.

    Have a look at post 9 here

    https://forums.moneysavingexpert.com/showthread.php?p=76375296#post76375296

    The poster (even though he had been contracted out for a period and had not paid NI for a period while abroad) still managed to qualify for a full NSP plus a "protected payment".

    To the extent that there is additional state pension within his full NSP, he is potentially benefiting from a higher than CPI increase.

    The "protected payment" will increase by CPI only.
    Therefore, those who had a high GMP at the starting point (and a correspondingly high COPE amount) could have their starting amount reduced to a point where it is impossible to increase their basic nSP (which is all index-linked) up to the equivalent of the extra pension they will receive from the GMP scheme (which is zero or max 3% index-linked). The difference will not be index-linked. Is this correct?

    Take the position of somebody who reached SPA in 2016 post 6 April and had been a member of a DB contracted out scheme since 1978.

    His starting amount would have been calculated according to the formula - with a high COD/COPE the old rules calculation would have given a higher SA than the new but would still almost certainly be well below the full NSP - suppose it was in the region of £125 a week. He could not improve this because he had reached SPA.

    That would then increase in payment under the triple lock.

    With regard to his occupational pension, his provider would split out the pre 88 GMP/post 88 GMP and excess.

    This would normally mean no increase on his pre 88 GMP/up to 3% CPI on post 88 GMP/ scheme rules on excess.

    Under the old SP, there was provision for indexation on the GMP through the state pension (see links in previous) - that provision ended in the new scheme so that as you can see, somebody in his position was and remains disadvantaged.
    Also, what happens to those whose who accrued pre 88 GMP but whose starting amount was more than the max nSP? Typically, these people would have been contracted out early in the working lives and then contracted in for a substantial period more recently when they enjoyed higher earnings. The high ASP they had accrued under the oSP is protected and is all index-linked. However, under the oSP, they would also have received an additional amount p.a. as indexation of their GMP. Have these people now foregone indexation on this additional amount?

    As above - such a person would have had his SA calculated according to the formula.

    Let's say his SA back in 2016 was £175.65 and he became eligible to draw his SP at the end of the year.

    This gave him a full NSP of £155.65 plus a "protected payment" of £20.
    Since then, his NSP has increased under triple lock and his protected payment under CPI.
  • DairyQueenDairyQueen Forumite
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    So, in the most extreme example, those who were very close to SPA when the nSP was introduced, and were contracted out throughout their working lives (and were not members of public schemes), will not receive indexation (or full indexation) on their equivalent of ASP (i.e. the GMP). However, those who were contracted-in for the same period (and are the same age) will receive triple lock up to the max nSP and then CPI on the amount above that?

    This transition period is a minefield.
  • xylophonexylophone Forumite
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    So, in the most extreme example, those who were very close to SPA when the nSP was introduced, and were contracted out throughout their working lives (and were not members of public schemes), will not receive indexation (or full indexation) on their equivalent of ASP (i.e. the GMP).

    Yes indeed (as acknowledged in the NAO report linked in my previous)

    13 The impact of new state pension reforms on people with Guaranteed Minimum Pensions will vary widely. The type of person who will do comparatively worse under the reforms is someone who has spent long periods in a contracted-out pension scheme and is close to retirement on 6 April 2016, so has little time to build up additional entitlement to new state pension. The Department estimates that 180,000 people who will reach state pension age in 2016-17 will have Guaranteed Minimum Pensions from before 1988. The amount by which people will be affected depends on their specific employment history. The Department’s modelling forecasts that 50,000 of these people will be worse off in 2017-18 as a result of the introduction of new state pension (paragraphs 3.13 to 3.17).
    However, those who were contracted-in for the same period (and are the same age) will receive triple lock up to the max nSP and then CPI on the amount above that?

    Yes.
    This transition period is a minefield.

    Yes.......
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