New State Pension and Contracted Out

[platform béalfeirsde]

Will those who were 'contracted out' between 1978 and 1997 be affected when the new State Pension begins?

http://www.thisismoney.co.uk/money/pens ... cting.html" onclick="window.open(this.href);return false;

[baldrick]

Seems that we will only get the current £113.10pw rather than the £155pw the Government said they would be paying after April 2016.

[RobertT]

Seems that we will only get the current £113.10pw rather than the £155pw the Government said they would be paying after April 2016.

That would depend on when you reach state pension age. Because after April 2016 contracted out workers will lose their NI rebate and start to pay NI contributions at 12% instead of 10.6% and will therefore begin to build up entitlement to a higher state pension of above the £113.10 you quoted. I think I read somewhere that for each year paying the 12% rate, you will build up another £4.30(aprox) per week in the new state pension.

So in roughly 10 ten years, contracted out workers would be on a par with others. Although the exact details will depend on an individual’s work history and whether they were contacted in or out while in other jobs.

In practice it will have a much bigger impact on those people who are due to reach SPA fairly soon after April 2016 than those who have still got a fair way to go.

[deltaforce]

So the so called new flat rate pension was just another headline grabbing fib then. So all those on FS pensions will be short changed. Never claimed nowt since 1981 and they still find ways to rob you.

[baldrick]

Seems that we will only get the current £113.10pw rather than the £155pw the Government said they would be paying after April 2016.

In practice it will have a much bigger impact on those people who are due to reach SPA fairly soon after April 2016 than those who have still got a fair way to go.

Well that's me then.

[platform béalfeirsde]

Looks like those who were contracted out and will be hitting retirement before 2020 have no way to make up for this.
Why were we contracted out - Did it suit the way the pensions were applied in those days?

[nataddick]

The New State Pension rules can be found at :-

https://www.gov.uk/new-state-pension/how-its-calculated" onclick="window.open(this.href);return false;

Robert is right about the credit position after 5 April 2016 and this is an extract from the website:-

'If your starting amount is less than the full new State Pension

You may be able to get more State Pension by adding more qualifying years on your National Insurance record after 5 April 2016 (until you reach the full new State Pension amount or reach State Pension age - whichever is first).

Each qualifying year on your National Insurance record after 5 April 2016 will add about £4.24 a week (which is £148.40 divided by 35) to your new State Pension.'

Personally, I retire in 2021 and my current State Pension Forecast is about £135 per week due to periods of employment where I was contracted out. I should get 5 years 'credit' for paying the new full rate NI and so this top up will get me close to the new flate rate of £155. However, like a lot of people I am unhappy with the Government's approach to state pension reform as they keep moving the 'goalposts' the closer I get to retirement, which leaves little time to try to make up any shortfall. My retirement age has gone up from 65 to 66 and yet I already have 42 years of NI contributions. This will rise to 49 years by the time I get to my new State Pension Age. I would argue that I have already paid in enough in NI contributions to have qualified for the new flat rate pension and I am sure that many people that are in their late fifties feel the same way.

[platform béalfeirsde]

Do the 19 tears (1978 to 1997) that we in Royal Mail were contracted out count as nought for National Insurance contributions or will we get a proportion of each year under the new State Pension rules?

[Fatboyslim]

I know it might sound a daft question. But, how do you check you are contracted out? I have a feeling I am. As I was one of the 1000's that were advised to get a private pension in the 1980's. I re-joined as soon as it was possible.

Thanks.

[RobertT]

Do the 19 tears (1978 to 1997) that we in Royal Mail were contracted out count as nought for National Insurance contributions or will we get a proportion of each year under the new State Pension rules?

I think you might be getting a bit mixed up between Basic State Pension and State Second Pension(S2P) there?

RM employees who are members of the final/average salary pension scheme are still contracted out of the State Second Pension formerly known as SERPS, and will continue to be until April 2016. In return for the NI rebate we received over the years, we effectively built up more RM pension instead of S2P. From 2016 that will stop and we build up more Flat Rate State Pension instead.

The number of years you’ve paid NI will continue to define how much Basic State Pension or new Flat Rate Pension you will receive.

[RobertT]

I know it might sound a daft question. But, how do you check you are contracted out? I have a feeling I am. As I was one of the 1000's that were advised to get a private pension in the 1980's. I re-joined as soon as it was possible.

Thanks.

Are you in the RM final/average salary pension scheme?
If you are, then you’re contracted out of S2P and will be until April 2016.

[platform béalfeirsde]

RM employees who are members of the final/average salary pension scheme are still contracted out of the State Second Pension formerly known as SERPS, and will continue to be until April 2016. In return for the NI rebate we received over the years, we effectively built up more RM pension instead of S2P. From 2016 that will stop and we build up more Flat Rate State Pension instead.

The number of years you’ve paid NI will continue to define how much Basic State Pension or new Flat Rate Pension you will receive.

Oh dear.
Looks like we are going to get hammered under this new State Pension.
All those years wasted - nobody would have minded paying the extra couple of per cent National Insurance contributions if they had known that this would happen.
http://www.thisismoney.co.uk/money/pens ... nsion.html" onclick="window.open(this.href);return false;

[platform béalfeirsde]

'Essentially, it could mean someone who worked for 35 years, but spent 20 years at a company that had a final-salary scheme, being left with just 15 years of qualifying National Insurance contributions for the new pension. How much this would reduce the full £155-a-week pension is not yet clear.

It will be a devastating blow for all those led to believe they would get £155 a week. Many workers also might not realise they were contracted out because this was often done automatically by employers.'
http://www.thisismoney.co.uk/money/pens ... nsion.html" onclick="window.open(this.href);return false;

[Fatboyslim]

I know it might sound a daft question. But, how do you check you are contracted out? I have a feeling I am. As I was one of the 1000's that were advised to get a private pension in the 1980's. I re-joined as soon as it was possible.

Thanks.

Are you in the RM final/average salary pension scheme?
If you are, then you’re contracted out of S2P and will be until April 2016.

Yes I am. Thank you for the clarification.

[nataddick]

There are 2 things we know for sure:-

1. Your entitlement under the new Flat Rate State Pension scheme will not be less than you are entitled to under the current scheme. Depending on your date of birth most people are able to get a pension forecast now by contacting :-
https://www.gov.uk/state-pension-statement" onclick="window.open(this.href);return false;

This forecast will provide details of how many years NI contributions you have been credited with, as at the date of the forecast. It will also show the amount of Basic Pension you are entitled to plus the Additional State Pension (also known as SERPS or State Second Pension) you will receive.

2. The 'accrual rate' rate for NI contributions after 5 April 2016 will be 1/35th of the new flat rate pension. The exact amount is not known for sure right now but is estimated to be £155 from 2016.

The extent to which the Government 'penalise' people for having been contracted out remains unknown at the moment as they haven't decided what to do and we won't know for some time yet!