pension contracted out

[compostcorner62]

i retired at 60 after 39 years with royal mail, i am now 64, and due to recieve my state pension at 66, i recently asked the state pension people what my state pension will be, and it turns out i will get £12 per week less than a full pension, this was due to the royal mail pension being contracted out, and although i paid a full 35 years of national insurance, because i retired at 60 they claim there was a two year shortfall in my national insurance payments, my options are to accept a lower state pension, or pay a lump sum of £2000 and get a full state pension.

[RobertT]

The state pension is quite confusing and can be very individual, but here's some things to consider:

The need to have 35 qualifying years to get the full state pension only applies to people who started their working life after 6th April 2016, which was when the 'new flat rate' system started and contracting out ended.
Everyone else will have time spent in the old system and may need more or less than 35 years depending on their individual work/NIC's history.

The old system was actually made up of two parts – the basic state pension and the additional state pension, also known as SERPS/S2P.
Basic state pension was earned simply by going to work and earning a minimum amount. S2P was based on how much NIC's you actually paid, so higher earners tended to build up more.

If you were a member of an employers contracted out scheme before 2016, you built up basic state pension but no S2P, because you were building up pension via your work scheme instead. In return for that, both you and your employer paid lower NIC's.

The whole point of contracting out was that your employers scheme would provide at least as much as S2P would have done. Most schemes provide substantially more!

There was no ability to contract into S2P and be in the RM pension, or any other similar contracted out scheme.

When the new state system started in 2016, everyone was given a starting amount based on their entitlement at the time. That could then be increased up to the flat rate, if it was lower, by working and earning a minimum amount, which is currently just under £6,400 per year from one employer.

One qualifying year adds 1/35th of the current flat rate pension onto your entitlement.

Onto your specifics:

If the state pension system hadn't changed in 2016, you would probably only qualify for the basic state pension, currently £169.50 per week, plus any S2P you may have earned along the way, at a guess a max of £10, plus your RM pension.

As a result of the 2016 changes, it sounds like you're getting £209 state pension plus your RM pension!

Had you been contracted in to S2P, you may have got more from the state, I'd guess around £40, but you wouldn't have any RM pension from before 2016!
I assume your RM pension from that period pays a lot more than £40!

Your potential payment of £2000 would give you an extra £12 per week for life, and you'd get your money back after 3 years or so.
Or another option would be to go back to work and earn just £6,400 in each of two tax years and earn the extra state pension that way.

[Dexydog]

Sorry to resurrect an oldish thread.
I took an confused (what's new?!) with this.
I was contracted out late 80's and contracted back in maybe early 2000's.
I have 40 full years according to HMRC. (I understand there is I difference between full years and qualifying years but not sure how to tell the difference).
My state diecast is 221 or full state.
Now, bear with me.
Before this year, my COPE amount was around £26- from April last year it seems HMRC don't include that figure anymore for some reason.
Would it therefore be reasonable to assume the extra 5 years I may have (full or qualifying I'm unsure) will make up for the £26 COPE amount, which I assume will be taken off the 221 at SRA?
It's only this year that HMRC seem to be warning that you won't get the full state pension if you were contracted out (which most people were).
They don't really offer any guidance on how it will actually affect what you get, despite them having all your records.
I've fired off a letter to the future pensions service, but any hints or advice on the subject would be much appreciated
I personally think this has the potential to catch a lot of people unawares when the time comes as it's all so ambiguous.
Cheers.

[RobertT]

There's common misconception that the COPE amount is taken off your state pension entitlement – it is NOT!

It's an estimate of how much SERPS/state second pension you would have built up had you been contracted in. That amount is included in the contracted out pension benefits you may have via your previous employers, and sometimes via personal pensions too.

More info: https://www.moneyhelper.org.uk/en/blog/ ... te-pension

[Dexydog]

Thanks I read that particular article and the a few conflicting ones also. (Internet and pension "experts" on other forums)
The HMRC it now seems is at pains to inform me that although my forecast is £221, it also says I might not get the full state as I was contracted out?! (They describe it as a "forecast"- which I get as it states the law might change, but also says I "cannot improve the forecast".
As I mentioned it doesn't mention a COPE amount anymore.
My NI years are 43 and showing "full", with 2 showing not enough and 1 that they are "checking" (and have been for last 3 years as I have been keeping track).
So do I get full state or not??
It looks like I do but what's worrying is it also says I might not, but doesn't tell me if, and how to rectify if not.

[RobertT]

The state pension forecast website isn't set out particularly well, but the figure in the green box is your entitlement 'today', or to be more precise up to the end of the most recent tax year they've worked out.
I think it usually gets updated around Oct/Nov time.

If it's equal to the 'most you can get' figure below, you can't build up any more.

If you have less than the full rate, and don't expect to build that up via paid employment, you might be able to buy any missing credits.
On my forecast, if I click 'view your NI record', it tells me which years have 'payable gaps'. Doing that will make those years 'full'.

[Dexydog]

This is where my confusion is.
It tells me I can't improve my "forecast".
So I'm loathe to pay 3 additional years I'm missing when I already have 40 full and that may already be enough to make up for any shortfall they're saying "might" be caused by contracting out.
It's telling me I might get less than full, but not telling me what to do so that doesn't happen when the time comes.
They have the figures in their system, surely it wouldn't to too hard for them to tell you if there will definitely be a shortfall.
I understand things change, but if the figures are for up to and including the current tax year then it should be able to tell me I'm short.
My issue is I'm leaving in May and don't intend making any more NI contributions.
Edit- rang future pensions and they're not taking enquires, hoping my letter to them may clarify.
Will report back on this thread if their reply may help anyone in same position.

[RobertT]

You're reading far too much into it. They're just covering all bases.

The figure in the green box is your entitlement as at 5th April 2024.
The calculations regarding contracting out were worked out when the new state pension started back in 2016.

You may have already read it, but a more in depth explanation of the state pension is here: https://www.gov.uk/government/publicati ... -explained

[Dexydog]

Hadn't seen that before now.
Part 7 does indeed say they've already accounted for it in the starting amount.
So I can assume I'll be getting the full amount as I've got 40 years contributions in to make up for it.
It is all very confusing like most pension questions if you don't know where to look.
In fairness my serps pot is 70k so that's a good amount on top anyway.
Just hope it doesn't change in the next 8 years.
Cheers Robert.