Editha

Deleting because I realise it needs amending.

Editha

OK. Deep breathe. Begin again.

My husband reaches state retirement age in 2017, after 6th April 2016 when the 'single tier' pension rules come into force. A previous pension forecast had told him that he had 30 years contributions which would have been sufficient for a full pension under the old rules, but you will need 35 years contributions to get a full single tier pension; so, we were anxious to make up the shortfall.

We've just got another pension forecast for him and realise that it is much more complicated than we realised because SERPS is being abolished under the new rules. That is the State Earnings Related Pension Supplement. But additionally anyone who was in a 'contracted out' pension scheme (mostly public employees) will have their pension reduced because they didn't pay SERPS contributions.

Under the old rules my husband will get a pension of £121.23 a week. That is the basic state pension of £113.10 plus £8.13 SERPS.

But, under the new, single-tier, rules he will only get £75.26 a week, which is only slightly more than half of the full single-tier rate of £148.40. This is not just because he has a shortfall of five years in contributions. Most of the reduction is because he was in a 'contracted out' pension scheme for most of his working life.

So, even if he made up the five missing years in Class 3 contributions, he would gain nothing because he would still get less under the new rules than he would get under the old. The rule is that you will get the higher of the two amounts.

The DWP advisors we have spoken to have said that in 2016 it will be possible to make up contributions, but the rules have not been published yet and we will have to wait and see whether he could benefit.

rebs

It might be worth checking over on the forums on MSE for more details. I have been reading for a while about the likely impact of being contracted out (likely to be anyone that was in a defined benefit scheme, not just public sector). As things stand I don't thing anyone really understands the exact impact.

As I understand things, they will work out for an individual what they would get under the old system and also under the new rules. The higher of those two figures becomes the 'foundation amount'. In this case, your husband should be no worse off in the new system (but not necessarily any better off).

What I am not clear on (which is where MSE might have more expertise) is what kind of benefit would be gained from buying additional years in the new system.

I've posted this before, but here is a document which talks about the impact of contracting out - might help. https://www.gov.uk/government/upload...acting-out.pdf

Editha

is exactly what the pension statement said. As I explain, he will in fact be better off under the old system.

rebs

Yes, so I guess the question is, going forward, will extra contributions add to that higher amount or not - if they do, it still might be worth doing.

From the gov.uk documents, I think that extra contributions should add onto the foundation amount, but I am not really 100% on that.

Editha

Using my husband's pension forecast as a guide, as I understand it, if your employment in the UK was 'contracted out' (almost anybody in public service) then your single tier pension will almost certainly be significantly lower than the old style pension. If that is the case you will be better off with the old style pension, and there is no point in paying the extra 5 years contributions needed for the single tier.

If you were never contracted out, then it might be worthwhile making up the shortfall to get a full single tier pension. I suppose it will depend on how much SERPS (or 'additional state pension') you are entitled to. I don't know whether it is possible to be entitled to so much SERPS that it brings your old rules pension to above the level of the new single tier. If it does, then it would be better to stick with the old rules pension.

rebs

I guess it still might be worth it for some people to pay for extra contributions if it increases the pension they will receive - might not get them up to the new flat rate, but might still be more than their starting foundation amount. Something for individuals to consider.

Yes, with SERPS it is possible to be over the new flat rate - some people that were high earners during their working lives while NOT contracted out of SERPS can have pensions of > £200 per week. This is the group that will effectively be 'losers' in the new system.

Yes, in theory it would be - but of course no one has that choice. Which system you are on is solely determined by your date of birth

Editha

What I meant was that you will be given the higher of the old style or the new style pensions. You don't get a choice, but it isn't determined by your date of birth either.

So my husband, for example, will get the old style pension, even though he reaches pension age in 2017, because his entitlement under the old rules is higher than under the new rules.

rebs

OK - I see what you are saying - he will get the higher amount from the 'old style' calculation.

Another interesting thread here... Pension forecast April 2016 - MoneySavingExpert.com Forums

I expect there will be more of these as people start to get forecasts and see the difference between old & new.

Post #13 suggests that the old scheme would be better for 'most' people - no idea if that is true or not.

Editha

Maybe I'm missing something, but the way it works seems quite illogical and unfair. If you paid SERPS then you lose the benefit of it under the single tier pension. But, if you were 'contracted out' (of SERPS) then your single tier pension is reduced.

It seems to me the treasury is having its cake and eating it. SERPS won't count towards the new pension but if you didn't pay it you are penalised.

rebs

It is probably true that it is unfair and the treasury is having it's cake and eating it too... that's usually the way with pension changes

I don't know enough to give technical details of the old/new stuff - just looking at the complicated details of GMP/additional pension/serps/sp2 on the MSE threads makes my head hurt!

What I do know is that in the future it will eventually simplify as there will be no SERPS or contracting in or out post 2016. There is complexity in the transition phase.

For those of us in this transition, we should not be any worse off retiring post 2016 than if we were retiring before 2016.

Editha

You are right, and I agree the new system will be simpler. Mustn't grumble!

not2old

I agree its both illogical & nuts given what the government has been telling folks.

Deal only with DWP ever, never IMO take what the likes of MSE, The Pensions advisory service, AGE UK or the news media have on their website as gospel

Recap... OH has 30 years NIC now & will need 35 under the new rules - so simply top up 5-yrs NIC. to get the max .... basic & simple - right, so you'd think.

Been down this road with DWP...

Suggest you go back to DWP again in writing (no phone calls ever) & if you do call ask to speak to a caseworker (demand a caseworker). When you've spoken to them ask for a confirmation in writing

Editha

I don't actually think there is any need to do that. We don't dispute the pension statement, and it is quite clear from that that there is no point in my husband trying to get another 5 years contributions, since he won't gain anything from them.

The DWP advisor did say that in 2016 people with a shortfall will be given an opportunity to catch up, going back to 2006, but it doesn't appear that will help people whose pension amount is reduced because of having contracted out. We can only wait and see.

cyrian

My understanding is that the DWP don't know the final rules yet.
However, a couple of documents state that if you have built up SERPS or S2P then you will not lose these. You will not be able to add to S2P after April 2016.

Here:
Pay extra into second state pension to get more than 144 rate | This is Money
Or a Govt factsheet:
https://www.gov.uk/government/upload...fact-sheet.pdf
In addition, contracting-out will end in April and anyone currently contracting-out will see their NI contributions increase.
If your entitlement under the old system is below the new pension level and you have sufficient years contributions then you will receive the new rate.
Periods of self-employment do not count towards S2P.
An in-depth discussion just now is probably a waste of time until HM Govt produce the final conditions.