SERPS but still "Full years" for NI
Discussion
pteron said:
I think you're right about the additional SERPs bit, but then what happened to all of the people who didn't contract out - where are their additional contributions now?
They didn't pay additional contributions, they just paid the standard rate.SERPs only ran from 1978 to 1997
Dependent upon the rules on the pension scheme that you were in, some allowed for a refund of your pension contributions when you left the scheme.
From this they deducted a CEP ( Contributions Equivalent Premium) to buy you back into the state scheme as if you weren't contracted out. After this a nominal amount of tax at 10% was deducted.
If you weren't allowed a refund the SERPS pension, referred to as the Guaranteed Minimum Pension was included as part of the paid up pension provided by the scheme.
The GMP portion gets revalued each year.
EatMyPants said:
They didn't pay additional contributions, they just paid the standard rate.
SERPs only ran from 1978 to 1997
Dependent upon the rules on the pension scheme that you were in, some allowed for a refund of your pension contributions when you left the scheme.
From this they deducted a CEP ( Contributions Equivalent Premium) to buy you back into the state scheme as if you weren't contracted out. After this a nominal amount of tax at 10% was deducted.
If you weren't allowed a refund the SERPS pension, referred to as the Guaranteed Minimum Pension was included as part of the paid up pension provided by the scheme.
The GMP portion gets revalued each year.
But back then weren't there two pensions? The basic bit and the earnings related bit? Aren't they combined now? Like the OP I have full NI contributions (according to the gov website), but I still have a bunch of money in the contracted out scheme. Am I actually going to get a smaller full state pension than otherwise? SERPs only ran from 1978 to 1997
Dependent upon the rules on the pension scheme that you were in, some allowed for a refund of your pension contributions when you left the scheme.
From this they deducted a CEP ( Contributions Equivalent Premium) to buy you back into the state scheme as if you weren't contracted out. After this a nominal amount of tax at 10% was deducted.
If you weren't allowed a refund the SERPS pension, referred to as the Guaranteed Minimum Pension was included as part of the paid up pension provided by the scheme.
The GMP portion gets revalued each year.
EatMyPants said:
Dependent upon the rules on the pension scheme that you were in, some allowed for a refund of your pension contributions when you left the scheme.
I was contracted out into a private DC pension, so it's all still there and done quite nicely, considering it had nothing but the NI rebates put into it.I hit 66 this year but have deferred state pension - the HRMC 'pension forecast' page no longer gives me a value, which isn't helpful.
I’m presuming you had full NI years before 1997?
It’s complicated to explain and despite reading/watching various stuff online I still don’t totally understand how it all works. All I know is that if you’ve been contracted out you’ll need more than 35 years of full NI years to get the full state pension. How many more years will depend on how long you were contracted out for and other factors.
I was contracted out for 21 years but had 10 years full NI before that, then 5 years since 2016. I have 1 year I need to pay into to make it full. So with 37 full NI years I get the full state pension. If I don’t pay for that 1 year I’m missing I’d be short of the full state pension by £5 a week.
It’s complicated to explain and despite reading/watching various stuff online I still don’t totally understand how it all works. All I know is that if you’ve been contracted out you’ll need more than 35 years of full NI years to get the full state pension. How many more years will depend on how long you were contracted out for and other factors.
I was contracted out for 21 years but had 10 years full NI before that, then 5 years since 2016. I have 1 year I need to pay into to make it full. So with 37 full NI years I get the full state pension. If I don’t pay for that 1 year I’m missing I’d be short of the full state pension by £5 a week.
pteron said:
EatMyPants said:
They didn't pay additional contributions, they just paid the standard rate.
SERPs only ran from 1978 to 1997
Dependent upon the rules on the pension scheme that you were in, some allowed for a refund of your pension contributions when you left the scheme.
From this they deducted a CEP ( Contributions Equivalent Premium) to buy you back into the state scheme as if you weren't contracted out. After this a nominal amount of tax at 10% was deducted.
If you weren't allowed a refund the SERPS pension, referred to as the Guaranteed Minimum Pension was included as part of the paid up pension provided by the scheme.
The GMP portion gets revalued each year.
But back then weren't there two pensions? The basic bit and the earnings related bit? Aren't they combined now? Like the OP I have full NI contributions (according to the gov website), but I still have a bunch of money in the contracted out scheme. Am I actually going to get a smaller full state pension than otherwise? SERPs only ran from 1978 to 1997
Dependent upon the rules on the pension scheme that you were in, some allowed for a refund of your pension contributions when you left the scheme.
From this they deducted a CEP ( Contributions Equivalent Premium) to buy you back into the state scheme as if you weren't contracted out. After this a nominal amount of tax at 10% was deducted.
If you weren't allowed a refund the SERPS pension, referred to as the Guaranteed Minimum Pension was included as part of the paid up pension provided by the scheme.
The GMP portion gets revalued each year.
My State Pension is about £9,800 pa as the SERPS element , difference between £9,800 and the full amount, is deemed to be included in the DB pension.
The SERPS element, ie GMP increases each year, the increase in paid in addition to the £16,500, known as "anti franking" So next April, depending upon the revaluation orders this could increase to say £16,600.
The State Pension will get the standard increases as defined by the "Triple Lock Rules"
Basically the idea was to put the financial burden on the private sector but to give at least the same amount if you weren't contracted out.
You can get an estimate of your State Pension here.
https://www.gov.uk/check-state-pension
silentbrown said:
Bit of an odd one...
I was contracted out of SERPS in '97 and the contracted out scheme shows NI rebate contributions paid into it from then until 2011...
However, my state pension forecast lists all those years as "full years" and I'm still eligible for a full state pension...?
The State pension can get quite complicated. I'll have a go below but there might be a few bits I skip over which someone else thinks is worthwhile mentioning.I was contracted out of SERPS in '97 and the contracted out scheme shows NI rebate contributions paid into it from then until 2011...
However, my state pension forecast lists all those years as "full years" and I'm still eligible for a full state pension...?
Background is that the State pension WAS comprised of the Basic State Pension (BSP) plus the State Earnings Related Pension Scheme (SERPS). The Basic State Pension is what everyone was entitled to regardless of earnings level, subject to the right number of years of NI contributions/credits having been "paid". The SERPS was a top-up based on earnings, as the name suggests, so the higher the earnings the greater the SERPS. SERPS subsequently became known as the State Second Pension (often written S2P).
Many people "contracted out" of SERPS through their company scheme or a private pension. Contracting-out meant that you didn't accrue the SERPS but instead paid lower NI contributions with the "rebate" being paid to your company or private pension. You will see this in a lot of older defined benefit pensions as Guaranteed Minimum Pensions (GMPs). Broadly, GMP is supposed to be equal to equal to the SERPS given up.
So you have accrued a full Basic State Pension entitlement and it's just the SERPS top-up which you don't have from being contracted out.
This changed in 2016 to a single "new State Pension" with some absolutely horrible transitional adjustments to try and ensure people don't lose out. The new State Pension is at quite a bit higher level than the old Basic State Pension. Basically, though, if you are still below State Pension Age, you have probably done pretty well out of being contracted-out - there was a bit of a push to contract people back in (ie, stop contracted out) a while ago - probably 2011ish - and I remember having to bequite forceful with the insurer who managed my "rebate only" pension fund not to contract me back in as that now means I have the benefit of those extra few years of rebates and will stille receive the full new State Pension in about another 12 years' time.
LordGrover said:
Pretty sure I didn't opt out - the forecast I'm quoted are typically a little higher than colleagues.
That's impressive; I thought the max was £230pw.https://www.gov.uk/new-state-pension/what-youll-ge... says:
'If you’re getting more than £230.25 a week
If you paid into the Additional State Pension before 2016 and would have got more State Pension under the old rules, you’ll get a ‘protected payment’. This is paid on top of the full rate of new State Pension.'
Was that it?
IIRC when they introduced the new state pension, your SERPS years are effectively written off by each subsequent full year of standard payments. Therefore if you had 10 contracted years by 2026 you would have made them back up. Subject to a full 35 years contribution.
In this scenario you would be a winner as you would also have a small private serps pension whereas someone who contracted in would not. It ws too complex for the govt to introduce additional rules.
Example 1 Winner - Born 1970, starts work at 18 in 1988 and contracted out of Serps until 2002. = 14 Years of contracted out.
Retires aged 67 in 2037 with a total of 49 years NI payments.
2037-2002 = 35 years full payments.
Entitlement full state pension plus 14 years private Serps investment.
Example 2 Not so lucky - Born 1970, starts work at 18 in 1988 and remain in SERPS
Retires aged 67 in 2037 with a total of 49 years NI payments.
Entitlement full state pension.
In this scenario you would be a winner as you would also have a small private serps pension whereas someone who contracted in would not. It ws too complex for the govt to introduce additional rules.
Example 1 Winner - Born 1970, starts work at 18 in 1988 and contracted out of Serps until 2002. = 14 Years of contracted out.
Retires aged 67 in 2037 with a total of 49 years NI payments.
2037-2002 = 35 years full payments.
Entitlement full state pension plus 14 years private Serps investment.
Example 2 Not so lucky - Born 1970, starts work at 18 in 1988 and remain in SERPS
Retires aged 67 in 2037 with a total of 49 years NI payments.
Entitlement full state pension.
Zigster said:
This changed in 2016 to a single "new State Pension" with some absolutely horrible transitional adjustments to try and ensure people don't lose out. The new State Pension is at quite a bit higher level than the old Basic State Pension. .
That makes sense, but I was under the impression that years when you contracted out don't count as qualifying years for the new state pension?From 1988 to 2012, you could contract out of the state pension into a personal pension. If you did this or did it for any part of the time, you still get SP, but you don't get the additional state pension. This is shown on your state pension forecast as COPE (Contracted Out Pension Equivalent). This amount isn't a deduction from the amount shown, but an indication of the minimum your contracted out pension should pay to make up for the extra you would have got had you not contracted out.
In my case, I was contracted out in 1988 by accident, I didn't really understand what I was doing, but was persuaded to do it by some spivvy salesman who was going door to door calling on the businesses in the area, and promised me I wouldn't regret it. It went into a personal pension with the Norwich Union, latterly Aviva. This continued until 2012 when the option was discontinued.
I retired aged 58 in 2021. My SP forecast says when I'm 67, I'll get full SP, but I would have got £9/week more had I not contracted out for 24 years. So I'm losing out £468/year. My Aviva contracted out pot was worth £120K when I came to retire, which I combined with my private DC pension and payed into a SIPP.
I cannot even recall the name or face of said spivvy salesman, but I remain eternally grateful to him.
In my case, I was contracted out in 1988 by accident, I didn't really understand what I was doing, but was persuaded to do it by some spivvy salesman who was going door to door calling on the businesses in the area, and promised me I wouldn't regret it. It went into a personal pension with the Norwich Union, latterly Aviva. This continued until 2012 when the option was discontinued.
I retired aged 58 in 2021. My SP forecast says when I'm 67, I'll get full SP, but I would have got £9/week more had I not contracted out for 24 years. So I'm losing out £468/year. My Aviva contracted out pot was worth £120K when I came to retire, which I combined with my private DC pension and payed into a SIPP.
I cannot even recall the name or face of said spivvy salesman, but I remain eternally grateful to him.
silentbrown said:
Zigster said:
This changed in 2016 to a single "new State Pension" with some absolutely horrible transitional adjustments to try and ensure people don't lose out. The new State Pension is at quite a bit higher level than the old Basic State Pension. .
That makes sense, but I was under the impression that years when you contracted out don't count as qualifying years for the new state pension?Zigster said:
silentbrown said:
Zigster said:
This changed in 2016 to a single "new State Pension" with some absolutely horrible transitional adjustments to try and ensure people don't lose out. The new State Pension is at quite a bit higher level than the old Basic State Pension. .
That makes sense, but I was under the impression that years when you contracted out don't count as qualifying years for the new state pension?Would like to know how Lord Grover got £277 though 'cos that's another £2,744pa.
Simpo Two said:
Zigster said:
silentbrown said:
Zigster said:
This changed in 2016 to a single "new State Pension" with some absolutely horrible transitional adjustments to try and ensure people don't lose out. The new State Pension is at quite a bit higher level than the old Basic State Pension. .
That makes sense, but I was under the impression that years when you contracted out don't count as qualifying years for the new state pension?Would like to know how Lord Grover got £277 though 'cos that's another £2,744pa.
The other point is that years worked after 2016 buy a specified amount of pension working up towards the maximum amount paid by the NSP. You don’t have to work many of those years to counteract everything you potentially ‘lost’ by contracting out. I think this is why a lot of people who were contracted out are now pleasantly surprised by their forecasts after hearing horror stories from some who retired shortly after 2016.
WhiskyDisco said:
I paid my SERPS to Equitible Life, which went bust. I don't expect to get anything back.
My pension forecast is only £1000 a month, and I have paid 35 years already.
You can’t have paid your SERPS to anything other than SERPS. What you presumably did was opt out of SERPS and invested the money instead with equitable life. My pension forecast is only £1000 a month, and I have paid 35 years already.
Edited by WhiskyDisco on Monday 22 December 21:02
Your New State Pension is paid up and you will get the maximum amount, due to 35+ years and the period of contracting out being made up since 2016. This is the position that most of us will find ourselves in over the next few years.
Unfortunately your contributions in lieu of SERPS have gone, but most of us won’t actually see a separate pot relating to contracting out - it will just be bundled up in various company schemes that will vary in their performance.
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