In Your 40's Seems You May Be "working" Until 70

[crashmonitor]

I looked at some of the links and the Government don't seem to be providing a simple formula, just waffle.

They must know the formula, they are providing universal pension forecasts.

Nanny state obviously thinks public incapable of simple arithmetic mechanics.

[Si1]

So in summary, if you have 35 years you get the old state pension. If you have some years of not contracted out, in my case say 20, then this counts as 20/35 of the difference between the £113 and £155 or £42 x 20/35 = £24.

Entitlement is £113 + £24 = £135.

£20 shorfall made up after 2016 by 5 years of nic.......£155/ 35 x 5 years = more than £20

????

I guess that's a different type of contracting out situation to the one that applied to final salary schemes where contracting out completely removes those years entitlements, or to zero, is that right people? Anyone know?

[Si1]

I looked at some of the links and the Government don't seem to be providing a simple formula, just waffle.

They must know the formula, they are providing universal pension forecasts.

Nanny state obviously thinks public incapable of simple arithmetic mechanics.

The more opaque it is the longer it is until the interest groups, in particular the big public sector unions, kick up a fuss. The longer that takes the less likely it is for the law to be changed. Edited June 16, 2015 by Si1

[crashmonitor]

I guess that's a different type of contracting out situation to the one that applied to final salary schemes where contracting out completely removes those years entitlements, or to zero, is that right people? Anyone know?

Amazing really that we can't source straight forward examples that cover most mixes of contributions from the government websites.

They are providing universal pension forecats themselves but the information they are putting out is unclear and useless.

[White Craw]

I guess that's a different type of contracting out situation to the one that applied to final salary schemes where contracting out completely removes those years entitlements, or to zero, is that right people? Anyone know?

This doesn't happen with contracting out of final salary schemes. The minimum state pension preserved from 2016 (even if contracted out over a whole working life) is basic pension accumulated under the present rules up to 2016 (1/30 of the pre-2016 basic state pension per qualifying year, 30 years maximum). Approximately.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

"(the actual calculation is more complicated and including it here would not aid clarity)"

[SpectrumFX]

Amazing really that we can't source straight forward examples that cover most mixes of contributions from the government websites.

They are providing universal pension forecats themselves but the information they are putting out is unclear and useless.

If you have the stomach to wade through it there's a bunch of examples and an example pension statement in here

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181229/single-tier-pension.pdf

The key point (as I understand it) is that if your contributions to date leave you better off under the old system than the new, then those contributions are valued under the old system and then topped up by 1/35th for each additional year of NI contributions you make subsequent to the introduction of single tier. The fact that the single tier way of assessing your contributions to date results in a massive cut for contracted out years is therefore irrelevant, as it just means that your Starting/Foundation Amount is calculated under the old rules (i think, and i hope etc. etc. )

[gf3]

Just rang the dwp to ask them the question on serps. The guy on the phone said could I hang on the phone while he looks through the legislation. I asked him to ring me back.

Why don't these people know the answer?

[crashmonitor]

If you have the stomach to wade through it there's a bunch of examples and an example pension statement in here

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181229/single-tier-pension.pdf

The key point (as I understand it) is that if your contributions to date leave you better off under the old system than the new, then those contributions are valued under the old system and then topped up by 1/35th for each additional year of NI contributions you make subsequent to the introduction of single tier. The fact that the single tier way of assessing your contributions to date results in a massive cut for contracted out years is therefore irrelevant, as it just means that your Starting/Foundation Amount is calculated under the old rules (i think, and i hope etc. etc. )

Thanks for the link.

They make the point that 80% of workers have contracted out at some point, then the only examples they give are Matt, a teacher, who is fully contracted out and will get the old state pension which he needs to enhance with extra years and Liz who never contracted out so gets the full £144, as it was then. surprised they couldn't have shown an example with a mix of contributions which applies to most workers.

Edited June 16, 2015 by crashmonitor

[Guest TheBlueCat]

Do anyone here seriously believe that those who have not made any provisions be left out completely?

If they're primarily citizens of another, then yes. They should be offered the price of a flight home and a lifetime ban on re-entry to the UK and that's it.

[gf3]

I've found this calculator that works out your entitlement under the current rules;

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

So my understanding is that your Starting Amount (what they were calling the Foundation Amount) is the higher of that figure, or what they calculate for your contributions to date under the new rules.

You then get an additional 1/35th of the new standard weekly pension amount for each additional year you work under the new scheme.

Presuming that my entitlement under the current rules is my starting amount, then for me that works out at me getting enough contributions to get the full state pension by the time i'm in my mid 50's

That is strange I asked for a statement a year ago and it said I had 34 years NI contributions. Went on the calculator and the highest number I could put in was 32 years. they no longer count the 3 years of NI from 16 to 19 years of age. B@stards

[kotf]

Yes it means someone with 26 years contracted out gets no state pension. The years you haven't paid full NI (contracted out) that are deducted from a maximum of 35 years (or however many you've worked below that but no more than that). You need 10 years of full NI to qualify for any state pension. 35-26=9 = stuffed.

I initially thought that - now I'm not so sure. I haven't seen anything referring to "full NI", I've only seen "qualifying years".

The only thing that seems to make sense is if a qualifying year is defined differently under the old and new schemes - so that under the old scheme a contracted-out year can be a qualifying year (albeit only for the basic pension). Using the different definitions of qualifying years produces different amounts - the larger of which is the foundation amount. So because 35-26=9=stuffed under the new scheme, the foundation amount is calculated under the old scheme. Can't make sense of it any other way but it's all guesswork...

[Si1]

If you have the stomach to wade through it there's a bunch of examples and an example pension statement in here

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181229/single-tier-pension.pdf

The key point (as I understand it) is that if your contributions to date leave you better off under the old system than the new, then those contributions are valued under the old system and then topped up by 1/35th for each additional year of NI contributions you make subsequent to the introduction of single tier. The fact that the single tier way of assessing your contributions to date results in a massive cut for contracted out years is therefore irrelevant, as it just means that your Starting/Foundation Amount is calculated under the old rules (i think, and i hope etc. etc. )

A major issue is that being contracted IN in the past gives little advantage, that is it enhances your foundation amount, but given so many spare future years to make up basic ni contributions, it makes no difference by the time you retire. At least of contracted out you get something (the contracted out ni invested privately). If you're contracted IN this constitutes a default. Edited June 16, 2015 by Si1

[Si1]

Someone's even raised a freedom of information request from the dwp

https://www.whatdotheyknow.com/request/why_treat_contracted_out_people

And got no reply. I wonder if this is an unforeseen issue?

[SpectrumFX]

That is strange I asked for a statement a year ago and it said I had 34 years NI contributions. Went on the calculator and the highest number I could put in was 32 years. they no longer count the 3 years of NI from 16 to 19 years of age. B@stards

If I recall correctly they tell you not to add it in, but then automatically add it anyway. So it should still be counting towards your cash figure.

Edited June 16, 2015 by SpectrumFX

[SpectrumFX]

Someone's even raised a freedom of information request from the dwp

https://www.whatdotheyknow.com/request/why_treat_contracted_out_people

And got no reply. I wonder if this is an unforeseen issue?

So it appears that having been contracted out isn't a problem. It's actually the contracted in who've been done over.

[gf3]

Someone's even raised a freedom of information request from the dwp

https://www.whatdotheyknow.com/request/why_treat_contracted_out_people

And got no reply. I wonder if this is an unforeseen issue?

Any change is going to make winners and losers.

Take the case of someone who has 45 years of NI 10 years contracted out. Should he get less than the guy that has only done 35 years contracted in? The first guy has done 35 year of contracted in as well.

Then you come across the guy that has done 45 years of contracted in and says why is the first guy getting the same as me.

[Si1]

So it appears that having been contracted out isn't a problem. It's actually the contracted in who've been done over.

Depends

If the private benefits from contracting out, they receive in place of being contracted in, are real then they may compensate for the loss of contracting out. In the case of public sector pensions and other final salary schemes a soft default option also appears to be in play, the accrued benefits in those schemes appear to be capable of being eroded, from general gist I get from the web. So if someone in one of these schemes is near retirement age and does not have sufficient years ahead of them to contribute to the new state pension then they will not be able to compensate for this loss of state pension from being contracted out, and the extra accrued benefits in their occupational pension may well not compensate. So they could lose out.

However in the case where you get sufficient spare years to make up your contributions to the new scheme, so if below about 50 or 55 years old currently, then having contracted out in previous years is likely to have been for free, it will not lead to you losing ANY state pension (depending how much you did)

Edited June 16, 2015 by Si1

[Si1]

Any change is going to make winners and losers.

Take the case of someone who has 45 years of NI 10 years contracted out. Should he get less than the guy that has only done 35 years contracted in? The first guy has done 35 year of contracted in as well.

Then you come across the guy that has done 45 years of contracted in and says why is the first guy getting the same as me.

Indeed

And how come someone has worked from the age of 16 to 70 contracted in gets the same as someone who spent 3 years in further education, 8 years at uni and 2 years traveling around the world.

[SpectrumFX]

Depends

If the private benefits from contracting out, they receive in place of being contracted in, are real then they may compensate for the loss of contracting out. In the case of public sector pensions and other final salary schemes a soft default option also appears to be in play, the accrued benefits in those schemes appear to be capable of being eroded, from general gist I get from the web. So if someone in one of these schemes is near retirement age and does not have sufficient years ahead of them to contribute to the new state pension then they will not be able to compensate for this loss of state pension from being contracted out, and the extra accrued benefits in their occupational pension may well not compensate. So they could lose out.

However in the case where you get sufficient spare years to make up your contributions to the new scheme, so if below about 50 or 55 years old currently, then having contracted out in previous years is likely to have been for free, it will not lead to you losing ANY state pension (depending how much you did)

If you're over 50 in a contracted out public sector pension then you've done well in other ways. For example, the PCSPS and local authority schemes used to pay out at 60. The element of the pension that had been earned up to the rule change that pushed retirement up to 65 can still be taken at 60. Ditto with the change from 65 to 67. Many of these pensions are generous enough (or were on these old terns) that the amounts paid out at 60 may well be enough to live on for some people.

[Si1]

If you're over 50 in a contracted out public sector pension then you've done well in other ways. For example, the PCSPS and local authority schemes used to pay out at 60. The element of the pension that had been earned up to the rule change that pushed retirement up to 65 can still be taken at 60. Ditto with the change from 65 to 67. Many of these pensions are generous enough (or were on these old terns) that the amounts paid out at 60 may well be enough to live on for some people.

True

But the new situation does seem to represent some degree of clawback

[Si1]

Government has said companies are allowed to reduce the defined benefit income they pay their employees by the same amount as the increased state pension they receive. But it has said that it will not be reducing the benefits of 5m public sector workers. Civil servants will therefore do very well out of the deal as they will be able to benefit from an extra £1,924 a year more for a tiny 1.4 per cent increase in their National Insurance contributions - See more at: http://www.mindfulmoney.co.uk/retirement-planning/the-state-pension-reform-were-you-better-off-contracted-out-after-all/#sthash.B7L6ut9W.dpuf

[SpectrumFX]

True

But the new situation does seem to represent some degree of clawback

That's certainly on the agenda. I've got an old deferred PCSPS pension for which I had several revaluation updates showing the "preserved" benefits indexed to RPI. Then it just retrospectively switched to CPI.

Most people don't even know they've been done over

Edited June 16, 2015 by SpectrumFX

[Si1]

Just out of interest, do we know what proportion of contracted out schemes were employer final salary-related, and how many were defined contribution/money purchase

[SpectrumFX]

Just out of interest, do we know what proportion of contracted out schemes were employer final salary-related, and how many were defined contribution/money purchase

I don't know. A relatively small number of public sector schemes had massive numbers of members (NHS, teachers, PCSPS etc.). So I don't think it's easy to makes a meaningful comparison just by looking at how many schemes there were of each type.

[Si1]

I don't know. A relatively small number of public sector schemes had massive numbers of members (NHS, teachers, PCSPS etc.). So I don't think it's easy to makes a meaningful comparison just by looking at how many schemes there were of each type.

OK, on a membership-weighted basis then?