Pension National Insurance Contributions Retrospective Change to Opted-Out
 

All,

Came across this today where from last April, changes to the NI rules, mean that the NI contributions we paid via our wages, for the duration of our service, are now classed as 'opted-out' payments. As a result, we are not entitled to a full state pension, at pensionable age.

https://www.change.org/p/all-veteran...etition-no_msg

Nasty!

Will they be demanding that you pay your employers increased contributions (3.4%) too as has happened with 'some' final salary pensions. :mad::mad:

This is nothing new. We've always been "opted out" of the second state pension(SERPS/Additional State Pension). There's no date on this document, but it mentions a State Pension of £107, so it's some time ago.

https://www.ctp.org.uk/assets/document/417241

Also mentioned here on page 2:
https://equiniti.com/media/792325/20...newsletter.pdf

and here, in 2014:
I served my country but I've been told I won't get full state pension | This is Money

It is probably more important to check your spouses entitlement. Following the flag can be deleterious to her pension

I find it interesting how, every year or so we get threads started which show that there is a gap in knowledge re pensions etc.


I served 16 years and then another 20 as a civil servant and it amazed me that full- career RAF mates knew little of the details of their pension, NI etc.- I suppose that is the reason for the "Financial Aspects of Resettlement" course.


In the present thread, The squodging together of basic pension + serps into one new pension has presented this false "injustice"


Lewradar


ps It also applies to Teachers, Civil Servants etc - all contracted out professions.

I will have worked for 12 years after leaving the RAF to receive the full 'new pension' but I always knew that in the RAF I was 'opted out' of what used to be SERPS. My NI contributions were less than if I was opted in so as I say it will have taken another 12 years of being 'in' to get the full £155. This really is not new news but I am dismayed that this is not common news to those still serving and who may need to consider how best to fund their retirement.

IMO it is new news, in that I think most of us were unaware of the implications of "contracting out" when we joined. Again, IMO this, and the changes to RPI linking should count as misrepresentation, much in the same way as misselling has been clobbered in other aspects of financial affairs. Why on earth would it be better for the individual to agree to a lower pension structure when joining a mandatory pension scheme? There was never any option given in respect of NI, in my experience.
I believe that "contracting-out" is a formal process. Perhaps Al R can advise how the MOD claim to have covered this?

OAP

A lot of the confusion comes from the DWP. If you ask them for a pension forecast with less than 10 years to retirement the answer is a firm 'No'. They direct you instead to the DWP online system that, once registered, will show you your NI record, any missing years and finally your current (how many years you have earned) and predicted (how many years you have to make-up the shortfall) state pension. Phew.

Except the answer it gives is wrong.

Inexplicably the online record does not take into account 'contracted out', well at least mine does not and I know I am not alone. It is entirely understandable that confusion reigns when you have a system will not give you a pension forecast until it is too late, whilst giving you online access to your own record which can be considerably in error.

This is a Government issue - they dictate my pay, pension, tax, NI, state pension forecast and online NI record. I have no control at all. I don't accept that I have received a discounted rate of NI either, or have put less into the NI pot. The removal of the NI cap on a % of our salary years ago means that higher earners pay considerably more NI than is otherwise required for a maximum state pension. As a case in point, my wife (contracted in) will receive more state pension benefits than I, but her annual NI bill is lower than mine.

Pay more, get less with a sprinkling of inaccurate forecasts.

I should add that since 2016 the Armed Forces are no longer 'contracted out' and we pay full NI.

I left in 1977 well before the second pension was introduced . I paid GPNI during my service and, as far as I am aware, the rate we paid was exactly the same percentage of our pay as that paid by civilians. There was one difference - our pay was much less than what a civilian aircraft engineer earned - presumably because we received 'free' food and lodgings.

For those who served from 1978 when SERPS began, there being no pension for a 12 year or less engagement, there is no "occupational pension" entitlement so how could anyone on such an engagement be considered "contracted out"?

It can be. But your spouse can apply to have years spent accompanying you abroad taken into consideration. This affected my wife but she very recently "claimed back" three years worth of "lost" NI contributions.

Do not get me started ShyTorque.. Within the last few years, my wife has had her state retirement qualifying age backdated by 8 years and, her previously fully qualified pension status, reduced by 6 years worth of payments to leave her short of full state pension. Why do we not hear much about this and, how come we let the pollies get away with it?:confused:

OAP

Have to say i'm with MG, Bladdered and R101 on this. Its not something new and has been in place since SERPS appeared (in 78 was it?) I heard about it around 20 years ago though must admit didn't pay much attention to pensions and the like back then. It could probably had done with being publicised a bit better though...

OAP, Last year my son spotted a small newspaper article about this and alerted his mother. There was no notification from HM Government as far as we know. Hopefully we now have her situation under control.

But both my state pension age and hers have been abated under the new rules; we both fall into the same dreaded age bracket.

Obviously, as a pilot, I can't continue to fly as single crew and must desist six years before I receive my state pension! Looks like I'll be relegated to collecting trolleys or shelf stacking at Tescos for six years. So much for being a professional... I don't expect to see any doctors or lawyers in this situation; they can keep their professional status for as long as they like.

Annoyingly, both my sister and my wife's can get their pension at the "old standard" age. because they are slightly older than we are.

Shy,
The Ladies pension age thing is real theft of around £58,000 per female. IMO, the very least the Gov should do is to count those extra years as NI paid and add them to the qualifying total of all ladies who were working age when the age change occurred. To those who say "suck it up, they can change the rules" I say, yes but the rules should be fair or they are bad rules. Wait till they increase the qualifying years level to 45+ years and, when they introduce means testing to state pension entitlement! Both coming, in around 2020 I predict! :yuk:

OAP

It's interesting for me now having both an American and a British "future pension". Maybe this will provide some perspective.

With something like 20 years of full year NI payments in the British scheme I am currently entitled to something like 55% percent (it used to be 66% - they keep trimming it) of the full pension which is currently what £120 per week? leaving me with maybe £70 a week ish at age 67 (for me) assuming I never work in blighty again. Quite honestly that seems like a bad deal for all those years of payments.

On the other hand I have paid into the American scheme for only 16 years, and if the Social Security Administration is to be believed I am already entitled to $1,150 a month even if I stop work now, so roughly £885 per month in the US scheme compared to just £280 a month in the British scheme, and I can claim it at 62 in the US as opposed to 67. If I work for another 10 years it will almost double to over $2,000 a month.

My numbers are probably shaky but you get the general idea, the UK pension seems to involve an awful lot of paying in and very little paying out, hence me relying on nothing government based and saving as much as I can into private schemes (401ks, IRAs etc). Even so I will never reach my "recommended retirement amount" - I suspect that there will be a lot of people on both sides of the Atlantic who will be working a lot longer than they had originally planned and I get the distinct impression that government funds are running out in both countries.

Not intended to be controversial, just thought the perspective might be interesting.

Remember though, in UK, NI pays for much more than your pension. It is also funding some of the NHS bill.

Just as with the US for Medicare (retiree's healthcare coverage) and Medicaid (55 million low income healthcare users). But yes, not to the extent of the single payer scheme coverage in the UK. The US is great while you are working, but terrible when retired or ill. It would also be true to say that most seniors still pay for additional healthcare insurance beyond the basic coverage offered by Medicare, so it's never a true "apples to apples" comparison.

My father was a government employee in the UK and never worried about retirement, he had a non-contrib works pension and his full state pension, and after retirement he and my mother actually saved money each month and wanted for nothing, all with minimal savings. I suspect that younger generations will find it more difficult.

Blacksheep

If memory serves in the early 80s the SSC types were paying more NI because they were not part of the service pension scheme but presumably were part of the SERPs scheme for exactly the same reason.

What I don't know is what happened when people transferred, presumably the system made sure that you lost out both ways.

If you want to see the detailed bad news, when you get onto the State Pension Forecast website and get your forecast, then select "how contracting out has affected your pension income". It will take you to a new page that will tell you were contracted out. It then talks about the:

Contracted Out Pension Equivalent (COPE)

Your workplace or personal pension scheme should include an amount of pension which will, in most cases, be equal to the additional State Pension you would have been paid. We call this amount your Contracted Out Pension Equivalent (COPE). Your COPE estimate is shown below.

The COPE amount is paid as part of your other pension schemes, not by the government. The total amount of pension paid by your workplace or personal pension scheme will depend on the scheme and on any investment choices.

In my case (28 years service) my COPE estimate is £90.53 a week. So I assume that if I supposedly achieve the £155.65 a week state pension, they will then deduct the COPE figure. Ouch!!

It's not new news, alas. In terms of back-filling NI contributions, you cannot fill a gap-year for which you were contracted out (in other words, those years that you were contracted out of the basic state pension (bps), and consequently, into AFPS). There has been a drip feeding of bad news about pension stuff, generally.

Just a quick reminder, contracting out of AFPS ends next month. [Archive] - PPRuNe Forums

Everyone has a 'starting/foundation amount' for their bsp. There are two types of starting amounts' one is linked to the old basic pension plus state earnings-related pension (SERPS), and there is the new bsp based on 35 years of contributions minus a deduction for past contracting out in a public sector pension, such as AFPS. It is this latter one which is causing so much grief for those so close to bsp retirement. For most others still serving, it's not so much as issue. By the time you get to bsp age (97 at the last count, I think), you'll have accrued thirty five years. It won't apply to everyone, but if in doubt, contact TPAS:

http://www.pensionsadvisoryservice.org.uk

More: https://www.theguardian.com/money/20...-state-pension

As an aside, we have seen the government being holed left, right and centre by the WASPI campaign. Part of that campaign is based on the premise the ladies weren't contacted. I believe I'm right in saying this, but everyone who may have been able to make good any shortfall, should (could?) have been contacted.

Call TPAS - a superb pension service. Run by Michelle Cracknell, a great chief exec, ex scaley brat and a fondness for the RAF - her dad was aircrew on the V Force.

Thanks Al! Can you offer any info on how the MOD would claim that I was reasonably informed about my pension rights in 1975? Sorry if that sounds crass but, they must have some get-out clause to avoid responsibility for lack of care? Cheers!

OAP

You have to look at how belligerent the government is with WASPI, and vice versa! It all goes, I imagine, to reasonableness.. was it reasonable for someone to know, or enquire, how their scheme was run? Don't get me wrong, I didn't have a clue either.

Another example for a pensions body (and federation?) acting unequivocally in the interests of all service personnel?

Thanks Al. What annoys me is that a lot of people have been stiffed. :mad:

OAP

I don't disagree at all. In the state's defence, I think, at the time, it was just the done thing. Even then, we all secretly knew the state retirement system was entirely dysfunctional, but there was mileage yet in kicking the can down the road to buy votes. No excuses, it was incredibly irresponsible, and it wasn't until the early 90's that everyone started to realise the game was up. I can't remember, but I'm pretty certain that as recently as two years or so ago, DWP obfuscated about the two different types of foundation point starter. Was its reasoning to help? I doubt it. Staff at DWP weren't properly trained and consequently, I imagine many people approaching retirement and requesting information were incorrectly briefed by call-centre staff.

Going back to your point about MoD culpability, the information was out there, in various scheme booklets, but its potential consequences were never interpreted (and why would they be?) and the implications were unforeseen. Ending 'contracting out' was the right thing to do for a much wider arc of reasons, the fillet of your pension that was attached to the contracted out element demanded a level of Guaranteed Minimum Pension that was unaffordable.

But it was only one of many reasons to be aggrieved with how all public sector pensions were going at the time (CPI/RPI revaluation etc). Another 1% pay rise continuing to decimate the value of any defined benefit pension, increasing inflation (the Trump switching off of fiscal restraint when the US job market is healthy anyway), (still) low interest rates, bond yield caps.. all point to financial repression and the governments of the world attempting to impede the markets. I'm seeing clients with defined benefit transfer values of between forty and fifty times annual,pensions at retirement.

Back to the point about financial repression and the insidious long term effect of (how many now?) years of 1% pay increases, will the PPRuNe of 2037 be asking 'why did no one advise us of the consequences of this? More importantly, why are 'we' sleepwalking into it? On a wider note, Hammond's budget was conspicuous by no references to pensions. Expect something in the next one. New, general rules of saving for retirement thumb? Expect to save for retirement for at least 45 years, start by putting away at least 12.5% per annum (if you trust AFPS enough to include in that the notional contribution, crack on) and build steadily on that level, and aim to have at least ten times your final salary set aside, when you retire.

My kids, I am certain, won't draw the miserable vestiges of what's left of their state pensions until they're seventy five. We're entering the third phase of pensions - the first was the bribe (to get knackered fifty year olds out of the mills and fields and into obscure, retirement misery until they died four years later of whatever it was they were expected to die of) to make way for the kids). The second was the sell (boomers were told that a retirement of walking through crashing surf was a forty year gin soaked, linen clad birthright), and now, the stick. Unless you look after yourself, financially, a bleak retirement in some local council dump being manhandled to the ward potty once every two days by a twenty eight year old from Asia who doesn't speak your language is the spectre.

"Zedder"
In my case (28 years service) my COPE estimate is £90.53 a week. So I assume that if I supposedly achieve the £155.65 a week state pension, they will then deduct the COPE figure. Ouch!!

Is it not that you still get the basic state pension £155.65. The £90.53 is what you would have had as your secondary state pension. You only opted out of the secondary state pension not the basic pension?

Worth a read

https://www.gov.uk/government/public...online-service

The COPE is a frightener, but as I understand it, you won't get less than the amount the 'old' state pension would have delivered, so it's more like £155 -90 (ouch!) but back to £119 (whew!).

@Al - is this right?

The 12.5% is of course on top of their university loan repayments. How the hell my youngest is ever going to have room to pay a mortgage is beyond me. The many thousands of school leavers who were encouraged to go to university by Blair's Government (mainly to avoid them appearing on the unemployed list ahead of an election) are going to struggle to pay back their "taxes for life".

Having followed this thread I dug out my pension forms from leaving.
I am entitled to a pension from age sixty which only becomes index linked when I claim at sixty.
I was under the impression it was index linked from leaving.
Am I reading this correctly?
My COPE is £24 something.
Thanks for any responses Al R maybe need to see an advisor I'm currently working for state.

Your preserved pension is increased at age 60 by all the pension increase measures which have occurred since you left service and then by CPI (the current pension increase measure) each year going forward.

Thanks for the reply.

My online estimate on the .gov website gave me the full pension of £155. However, having been contracted out in the RAF and in a company pension scheme, my COPE is going to be £69 per week. What I don't understand is that by the time I retire I will have 48 full and 2 partial years of NI contributions, whereas to qualify for a full pension 30 years contributions are required. Do my extra years not count towards the full pension?

How many of your 48 years were not contracted out? The way I read it you would need 30 years of contracted in to get the full whack as this new pension was effectively produced by adding the old basic and SERPS bits.

Frankly I think many people in general will struggle to put 12.5% aside. The cost of living in the UK seems to be growing far quicker than income before we even consider our national past time of slapping tax on everything. Retiring with a savings pot of 10x final salary will require the Govt to actually think strategically and stop raiding savings schemes, in whatever form they come, for a quick fix. I know we grumble a lot, but we are in a better position than most, and I really do fear the country will have real problems in 40-50 years time when those who aren't as fortunate come to retire. The implications for society and social cohesion, let alone Govt finances are frightening.

Thanks for the reply. I was contracted in for about 14 years. Your summary of how the new pension was produced is probably the most succinct I have read in this morass. After poking around on the web for a day I think I have a grasp of this and it looks like I'll end up with £119 pw and not the £155 advertised. What galls me more than anything was the suggestion was that it was possible to top up the NI contributions, to achieve the full pension, taking no account of the extra years of contributions over and above the 35 I've already made.

Still a little confused. Here is my pension forecast:

Estimate based on your National Insurance record up to 5 April 2016
£135.74 a week
Forecast if you contribute another 5 years before 5 April 2034
£155.65 a week

I have a COPE of £48.

On 5 Apr 2021 I will have contributed enough to reach the full £155, including the £48 COPE, giving me an actual state pension of £107. This is based on (roughly) 18 years full contribution and 17 years opted-out. If I continue to contribute for say another 5 years, will they take the extra full years over the opted-out years and credit me with 23 full years, and a "balance" of 12 years opted-out? Or are any extra contributions past 2021 effectively wasted in terms of my state pension?

Rather than £107 you will get £119 as the highest of the 2 systems. I don't know the answer to the second part - wish I did.

JTO and OF. My understanding is that the "COPE" deduction is rather theoretical. In other words, they compared your pension under the old scheme with the new one on 5 April 2016. So OF might have accrued £119 and some additional SERPS/S2P under the old scheme adding up to £135.74 this was compared with the new scheme which was £155 minus COPE of £48 (ie £107) because of contracting out. Your starting amount would have been the higher of the two figures - therefore £135.74. Since contracting out finished last year, any NI paid since Apr 16 adds to your pension starting amount until you reach £155. Provided you pay the full stamp, you get over £4.40 per week extra pension for each year of NI. So as per the estimate provided to you, you have to work/pay NI for 5 more years to reach the full £155 figure.

That is how I understand it works as I am in a similar position. I would, of course stand to be corrected by professionals such as Al R or VOXPOP.

jonw66

As I understand it (though I may be wrong): preserved pension increases:

https://www.gov.uk/government/public...-increase-2017