contracting out - Don't let it be a surprise

[stephen500]

So Robert T, This Cope did confuse and worry me. But can you confirm this is right. The Cope amount reflects what should have been included in our final salary scheme in return for contracting out of the second pension or Serps. The reductions in national insurance, yes did reduce the standard state pension but not by the Cope amount. Mine had a starting point of £138 in 2016 and has grown by £4.60 (approx) for 4 years and with this year's contributions ends up at £161. It states on the government site, that cope has nothing to do with the pension forecast. Am I am right about that thanks. I would have to think that they would not take £86 (my cope amount) of my basic state pension.

[RobertT]

Yes you're correct!

Up to 2016 the state pension had 2 elements: Basic State Pension and SERPS(also known as State Second Pension & State Additional Pension).
If you were contracted out, you were only building up Basic State Pension. But the idea was you would be accruing at least as much via your company pension than you would have been had you been in SERPS.

The COPE amount is an estimate of how much you accrued via your RM pension(and any other similar pensions you may have) as a result of contracting out. It doesn't affect your state pension entitlement at all.

In 2016 everyone was given a 'starting amount' of state pension based on their contributions up to that time. If it was lower than the full rate(currently £175), you would be able to build up more by continuing to work, which you've done.
If the system hadn't changed many people would only get that starting amount, with no ability to increase it - in your case £138. So although it meant our NIC's increasing, it also meant more state pension!

I might add that buying missing qualifying years can be a minefield and it's not always advantageous to buy pre 2016 years, as that won't necessarily add any more onto your state pension entitlement. Obviously depending on circumstances.

If you want to buy post 2016 qualifying years, the current cost of 1 year is around £800 for 2020/21, which will give you an extra £5 per week for life, based on the current £175 full rate. Meaning a pay back time of around 3 years once you've begun drawing your state pension.
That's likely to be good value for money over the long term for most people.

[stephen500]

Yes you're correct!

Up to 2016 the state pension had 2 elements: Basic State Pension and SERPS(also known as State Second Pension & State Additional Pension).
If you were contracted out, you were only building up Basic State Pension. But the idea was you would be accruing at least as much via your company pension than you would have been had you been in SERPS.

The COPE amount is an estimate of how much you accrued via your RM pension(and any other similar pensions you may have) as a result of contracting out. It doesn't affect your state pension entitlement at all.

In 2016 everyone was given a 'starting amount' of state pension based on their contributions up to that time. If it was lower than the full rate(currently £175), you would be able to build up more by continuing to work, which you've done.
If the system hadn't changed many people would only get that starting amount, with no ability to increase it - in your case £138. So although it meant our NIC's increasing, it also meant more state pension!

I might add that buying missing qualifying years can be a minefield and it's not always advantageous to buy pre 2016 years, as that won't necessarily add any more onto your state pension entitlement. Obviously depending on circumstances.

If you want to buy post 2016 qualifying years, the current cost of 1 year is around £800 for 2020/21, which will give you an extra £5 per week for life, based on the current £175 full rate. Meaning a pay back time of around 3 years once you've begun drawing your state pension.
That's likely to be good value for money over the long term for most people.

Thanks. You just have to live past 70 at least or perhaps 71 !

[tractorboy2]

Mine said £174.71 as of April 2020 , so this will increase by the grand total of 49p in the current tax year.
What I don't understand though is I was contracted out for a period of time. So how many years do you need to pay NICs to get maximum pension ?

[NWpostie]

I've got 3 years of NI contribution to get the full amount, currently I can claim £163.50p, in 3 years I gain an extra £12.30p a week, quite a significant sum, when paired with my RM pension is significant amount of money.

I have my AVC on top to live off between my NRA60/65 and SPA67.

To be honest looking at my NRA65 amount on the statement its not much, I may consider claiming that and take the 25% hit.or leave it and deal with Capita to claim it and that would be a long fight from what I hear about how useless they are, I worked out based on my statement that the 25% reduction is £4 difference a week, of course things can change in the future.

[Steve_claret]

To be honest looking at my NRA65 amount on the statement its not much, I may consider claiming that and take the 25% hit.or leave it and deal with Capita to claim it and that would be a long fight from what I hear about how useless they are, I worked out based on my statement that the 25% reduction is £4 difference a week, of course things can change in the future.

Most of your NRA65 pension from April 2012 to April 2018 is with the RMPP whose statement we haven't received yet. So far we have only received the RMSPS (Capita) statements which is only about 25% of the total NRA65 excluding any Cash Balance and any AVC's which you may have. If you do decide take your 65 pension early then you will have to take it all as you can't split it.

[TheStrangler]

Good post Stephen500 I've often wandered about the contracted out thing. Bit more straight forward when you can just compare £per week pension increase to annual lump sum
I could never find the right info on how to pay the difference to make up to full pension so links helpful.
By the way when you leave in December are you just giving one weeks notice (assuming you're paid weekly)?

[RobertT]

Yes you're correct!

Up to 2016 the state pension had 2 elements: Basic State Pension and SERPS(also known as State Second Pension & State Additional Pension).
If you were contracted out, you were only building up Basic State Pension. But the idea was you would be accruing at least as much via your company pension than you would have been had you been in SERPS.

The COPE amount is an estimate of how much you accrued via your RM pension(and any other similar pensions you may have) as a result of contracting out. It doesn't affect your state pension entitlement at all.

In 2016 everyone was given a 'starting amount' of state pension based on their contributions up to that time. If it was lower than the full rate(currently £175), you would be able to build up more by continuing to work, which you've done.
If the system hadn't changed many people would only get that starting amount, with no ability to increase it - in your case £138. So although it meant our NIC's increasing, it also meant more state pension!

I might add that buying missing qualifying years can be a minefield and it's not always advantageous to buy pre 2016 years, as that won't necessarily add any more onto your state pension entitlement. Obviously depending on circumstances.

If you want to buy post 2016 qualifying years, the current cost of 1 year is around £800 for 2020/21, which will give you an extra £5 per week for life, based on the current £175 full rate. Meaning a pay back time of around 3 years once you've begun drawing your state pension.
That's likely to be good value for money over the long term for most people.

Thanks. You just have to live past 70 at least or perhaps 71 !

It depends when your state pension age is, but basically 3 years and you're in 'profit'.

[RobertT]

Mine said £174.71 as of April 2020 , so this will increase by the grand total of 49p in the current tax year.
What I don't understand though is I was contracted out for a period of time. So how many years do you need to pay NICs to get maximum pension ?

For someone with all their state pension qualifying years after 2016, then it will be 35 years.
But for those with both before and after 2016, it'll depend on their own individual work / NI history, particularly if they've been contracted out at some point. So there isn't a definitive answer to that one!

[stephen500]

To be honest looking at my NRA65 amount on the statement its not much, I may consider claiming that and take the 25% hit.or leave it and deal with Capita to claim it and that would be a long fight from what I hear about how useless they are, I worked out based on my statement that the 25% reduction is £4 difference a week, of course things can change in the future.

Most of your NRA65 pension from April 2012 to April 2018 is with the RMPP whose statement we haven't received yet. So far we have only received the RMSPS (Capita) statements which is only about 25% of the total NRA65 excluding any Cash Balance and any AVC's which you may have. If you do decide take your 65 pension early then you will have to take it all as you can't split it.

If you are section B then the NRA 65 portion of RMSPS can be quite a tidy lump sum. Mine is over £3000 and a pension of around £300, even with my 26% loss for taking early.

[stephen500]

Good post Stephen500 I've often wandered about the contracted out thing. Bit more straight forward when you can just compare £per week pension increase to annual lump sum
I could never find the right info on how to pay the difference to make up to full pension so links helpful.
By the way when you leave in December are you just giving one weeks notice (assuming you're paid weekly)?

Yes and as I have one weeks leave, I think they will have to let me go there and then, unless they want to make me work and pay me for the weeks annual leave.

[stephen500]

Mine said £174.71 as of April 2020 , so this will increase by the grand total of 49p in the current tax year.
What I don't understand though is I was contracted out for a period of time. So how many years do you need to pay NICs to get maximum pension ?

For someone with all their state pension qualifying years after 2016, then it will be 35 years.
But for those with both before and after 2016, it'll depend on their own individual work / NI history, particularly if they've been contracted out at some point. So there isn't a definitive answer to that one!

I don't know your personal circumstances. But your estimated pension should rise by about £4.60 per year as you should now be paying the same NIC as every one.
Mine has risen by about £18 for 4 years. SORRY OVER 4 years
Mine started off at around £138 and I expect it to be £161 by December of this year.
The government pension forecast site says with another 4 years I would reach full pension, so I don't know what your 49p is about?
The gov web site should also tell you when you will reach a full state pension, or you can just buy the years.

[tractorboy2]

Hi Stephen500 The state pension website said my state pension was worth £174.71 as the maximum is £175.20 , the difference is 49p , therefore by the end of the tax year my state pension will only increase by that 49p.

[freespeech]

Mine said £174.71 as of April 2020 , so this will increase by the grand total of 49p in the current tax year.
What I don't understand though is I was contracted out for a period of time. So how many years do you need to pay NICs to get maximum pension ?

For someone with all their state pension qualifying years after 2016, then it will be 35 years.
But for those with both before and after 2016, it'll depend on their own individual work / NI history, particularly if they've been contracted out at some point. So there isn't a definitive answer to that one!

I don't know your personal circumstances. But your estimated pension should rise by about £4.60 per year as you should now be paying the same NIC as every one.
Mine has risen by about £18 for 4 years.
Mine started off at around £138 and I expect it to be £161 by December of this year.
The government pension forecast site says with another 4 years I would reach full pension, so I don't know what your 49p is about?
The gov web site should also tell you when you will reach a full state pension, or you can just buy the years.

NI payments will depend on circumstances. You don't pay NI on pension payments in isolation only tax (if it is above your personal allowance).

[Steve_claret]

Yep, always worth checking your state pension well in advance of receiving it. It's easy to do via https://www.gov.uk/check-state-pension" onclick="window.open(this.href);return false;

I did mine last year and I am due £159.43. To get the full £175.20 I would have to work another 4 years which is definitely not in my plans.

Or you could pay Vol contributions as above.

I have just checked my NI record and it says that I have 45 years of full contributions and do not have any gaps. Am I correct in thinking that as there are no gaps in my record then I can't make any voluntary contributions?