Contracted Out of State Pension?

[yellowbelly]

Contracting out doesn't effect your state pension it relates to the additional "state second pension", I also contracted out for a number of year and I haven't a clue if I'm better off or worse off having done so!

One of the benefits of the second pension is that I can take a 25% lump sum tax free or even take the whole pension and pay the appropriate tax but if I'd stayed in the state scheme I'd just receive a monthly pension payment.

Doubt a lot of people know there's a between state pension and the second state pension element but you're correct.

The theory was the second state pension and your contracted out pension should be at least equivalent at the end of the day but with the possibility of increased investment returns on your contracted out pension (and you paid less NI).

If your current DWP forecast (if you've got one) indicates you should get the max DWP amount at your retirement age then you're probs better off as you've got your contracted out 'second' pension as well.

I always assumed if I'd stayed in the Government scheme I'd get an additional SP2 payment on top of the standard DWP forecast.

If you were in a job which was not contracted out/you didn't opt out then quite likely, but from your posts i don't think you've
retired yet and this is on the .gov website:

You reached State Pension age on or after 6 April 2016

You will not get the Additional State Pension if you reached State Pension age on or after 6 April 2016. You’ll get the new State Pension.

And this from unbiased.co.uk

If you reached state pension age on or after April 2016:

Your state pension income is based on the number of qualifying years you paid NI contributions.

Your state pension may be adjusted based on your state pension entitlement under the previous system and if you were “contracted out” during your working life.

Pensions are really quite difficult to understand, I'm glad I took the effort to get a DWP forecast to put my mind at rest. It's well worth it for anyone who hasn't done it.

[RobertT]

It might be worth pointing out the difference between the old and new state pension systems and how they interact with one another:

Up to April 2016 your state pension entitlement would have been made up of two parts:
a. Basic State Pension(BSP) accrued by working and earning a minimum amount of money, or else being on certain state benefits.
b. State Second Pension(S2P) also known as State Additional Pension or SERPS, accrued by how much NIC's you paid. So higher earners would generally have more S2P than lower earners.

If you were in a contracted out workplace pension, you were building up benefits via that instead of S2P and in return your NIC's were lower.
You would still have accrued BSP!

The whole point of contracting out was that you built up at least as much via your workplace pension than with S2P. That could have been with a defined benefit scheme such as RM's RMPP/RMSPS or with a personal pension.

Anyone reaching state pension age before April 2016 would be getting a maximum of the BSP amount, which was £119.30 at the time(currently £176.45) assuming they'd built up enough years, plus any S2P. With their workplace pension/s on top.

In 2010 the number of qualifying years needed to get the full BSP was reduced from 44(men) / 39(women) to 30 for everybody.

The system changed in 2016 and a new 'flat rate' of £155.65 was introduced(currently £230.25) and a 35 year qualifying period was introduced.
At that point everyone was given a 'starting amount' of 'new state pension', which was based on what they'd accrued up to then.

If your entitlement was higher than that flat rate because of your S2P, you were allowed to keep that. But if it was lower, that could be increased by carrying on working and building up more years. Or else purchase missed or incomplete years.

The majority of current workers will have accrued some state pension via both systems and so the amount of qualifying years needed to get the full rate can vary based on your own circumstances. It could be over 40 for some and under 30 for others. Which is why it's important to get a forecast, so you know what you're going to get and can prepare yourself accordingly.

Only those people who started their working lives after April 2016 and so are entirely under the new system, need 35 years to get the full amount.

If you find yourself with less than the full rate, buying a few years is well worth it.
It'll take around 3 years to get your money back and then you're in profit for the rest of your life!

[yellowbelly]

It might be worth pointing out the difference between the old and new state pension systems and how they interact with one another:

Up to April 2016 your state pension entitlement would have been made up of two parts:
a. Basic State Pension(BSP) accrued by working and earning a minimum amount of money, or else being on certain state benefits.
b. State Second Pension(S2P) also known as State Additional Pension or SERPS, accrued by how much NIC's you paid. So higher earners would generally have more S2P than lower earners.

If you were in a contracted out workplace pension, you were building up benefits via that instead of S2P and in return your NIC's were lower.
You would still have accrued BSP!

The whole point of contracting out was that you built up at least as much via your workplace pension than with S2P. That could have been with a defined benefit scheme such as RM's RMPP/RMSPS or with a personal pension.

Anyone reaching state pension age before April 2016 would be getting a maximum of the BSP amount, which was £119.30 at the time(currently £176.45) assuming they'd built up enough years, plus any S2P. With their workplace pension/s on top.

In 2010 the number of qualifying years needed to get the full BSP was reduced from 44(men) / 39(women) to 30 for everybody.

The system changed in 2016 and a new 'flat rate' of £155.65 was introduced(currently £230.25) and a 35 year qualifying period was introduced.
At that point everyone was given a 'starting amount' of 'new state pension', which was based on what they'd accrued up to then.

If your entitlement was higher than that flat rate because of your S2P, you were allowed to keep that. But if it was lower, that could be increased by carrying on working and building up more years. Or else purchase missed or incomplete years.

The majority of current workers will have accrued some state pension via both systems and so the amount of qualifying years needed to get the full rate can vary based on your own circumstances. It could be over 40 for some and under 30 for others. Which is why it's important to get a forecast, so you know what you're going to get and can prepare yourself accordingly.

Only those people who started their working lives after April 2016 and so are entirely under the new system, need 35 years to get the full amount.

If you find yourself with less than the full rate, buying a few years is well worth it.
It'll take around 3 years to get your money back and then you're in profit for the rest of your life!

You ought to set yourself up with one of these RobertT for all the information you've put on here re pensions!:

https://buymeacoffee.com/

[RobertT]

https://buymeacoffee.com/

Don't give me ideas!