New state pension and contracting out

[Nimrod103]

A question has arisen elsewhere which I just no longer have the mental capacity to handle.

A worker who used to be contracted out, continues to work post 2016 under the new scheme. If he works for long enough under the new scheme, does there come a point where he can receive the maximum new state pension (currently £168/week)?

If that was the case, he would be in a more advantageous position than another worker who had been contracted in before 2016, because he would have a private pension in additiuon to his state one.

Is that correct?

[mc2fool]

A worker who used to be contracted out, continues to work post 2016 under the new scheme. If he works for long enough under the new scheme, does there come a point where he can receive the maximum new state pension (currently £168/week)?

Depending on how old they are, yes. Anyone that has pre-2016 NI years can continue adding NI years post 2016 (even past 35), by working and/or voluntary NICs, until they reach either the full new state pension amount or until the tax year before reaching state pension age, whichever comes first.

If that was the case, he would be in a more advantageous position than another worker who had been contracted in before 2016, because he would have a private pension in additiuon to his state one.

Is that correct?

Generally no, although it's very person/circumstances specific. Anyone who was contracted in would be getting additional state pension in their "starting amount" calculation and could very well already be down for getting more than the full new state pension amount.

[Chrysalis]

Yes - answer to first question.
Some contracted in individuals will have accrued entitlement in excess of the maximum new SP. There are winners and losers under the new system (overall more losers, especially as time goes on, as its designed to save money)

[Chrysalis]

Sorry cross posted. Agree with mc2fool who put it more clearly than me

[Nimrod103]

Generally no, although it's very person/circumstances specific. Anyone who was contracted in would be getting additional state pension in their "starting amount" calculation and could very well already be down for getting more than the full new state pension amount.

My question was really about those still a long way from reaching SRA, so in both cases their new state pension would be much larger than their starting amounts. Therefore they will receive the new state pension. For example out of a working life of 45 years, one worker does the first 20 years contracted in, and 25 under the new rules. The second worker does 10 years contracted out, 10 contracted in, then 25 under the new rules. Are you saying that worker 2 gets not only the full state pension, but also the private pension from his first 10 years of work. So worker 2 is in a better position than worker 1. Is that correct?

[mc2fool]

My question was really about those still a long way from reaching SRA, so in both cases their new state pension would be much larger than their starting amounts. Therefore they will receive the new state pension. For example out of a working life of 45 years, one worker does the first 20 years contracted in, and 25 under the new rules. The second worker does 10 years contracted out, 10 contracted in, then 25 under the new rules. Are you saying that worker 2 gets not only the full state pension, but also the private pension from his first 10 years of work. So worker 2 is in a better position than worker 1. Is that correct?

I didn't say that but it sounds about right. I don't think it's possible to get a starting amount more than the full new state pension amount from just 10 years, no matter how much you earned.

The IFS did a report on the new state pension in 2013 and who it affects how, with quite a few different example cases. You may be able to find the case you are thinking of in it.

https://www.ifs.org.uk/publications/6796

[AsleepInYorkshire]

A question has arisen elsewhere which I just no longer have the mental capacity to handle.

A worker who used to be contracted out, continues to work post 2016 under the new scheme. If he works for long enough under the new scheme, does there come a point where he can receive the maximum new state pension (currently £168/week)?

If that was the case, he would be in a more advantageous position than another worker who had been contracted in before 2016, because he would have a private pension in additiuon to his state one.

Is that correct?

Sorry. I'm confused. I thought people in the past contracted out of SERPS?

AiY

[Nimrod103]

My question was really about those still a long way from reaching SRA, so in both cases their new state pension would be much larger than their starting amounts. Therefore they will receive the new state pension. For example out of a working life of 45 years, one worker does the first 20 years contracted in, and 25 under the new rules. The second worker does 10 years contracted out, 10 contracted in, then 25 under the new rules. Are you saying that worker 2 gets not only the full state pension, but also the private pension from his first 10 years of work. So worker 2 is in a better position than worker 1. Is that correct?

I didn't say that but it sounds about right. I don't think it's possible to get a starting amount more than the full new state pension amount from just 10 years, no matter how much you earned.

The IFS did a report on the new state pension in 2013 and who it affects how, with quite a few different example cases. You may be able to find the case you are thinking of in it.

https://www.ifs.org.uk/publications/6796

Thanks. I find reading these Govt and Think Tank reports a lot like wading through treacle. None of example cases cited was all that relevant. If only they would put in more graphs and tables. I often feel such reports are deliberately written to hide things.

[monabri]

Get your friend to register for a Personal tax account. They will be able to see their current state pension and what their max might be if they carry on working and how many years it will take to reach this max.

https://www.gov.uk/personal-tax-account

( text copied from UK Government website)

"You can use your personal tax account to:

check your Income Tax estimate and tax code
fill in, send and view a personal tax return
claim a tax refund
check and manage your tax credits
check your State Pension
track tax forms that you’ve submitted online
check or update your Marriage Allowance
tell HMRC about a change of address
check or update benefits you get from work, for example company car details and medical insurance
find your National Insurance number
More services will be added in the future."

[Nimrod103]

A question has arisen elsewhere which I just no longer have the mental capacity to handle.

A worker who used to be contracted out, continues to work post 2016 under the new scheme. If he works for long enough under the new scheme, does there come a point where he can receive the maximum new state pension (currently £168/week)?

If that was the case, he would be in a more advantageous position than another worker who had been contracted in before 2016, because he would have a private pension in additiuon to his state one.

Is that correct?

Sorry. I'm confused. I thought people in the past contracted out of SERPS?

AiY

No, it was possible to work for one employer, contracted out, then move jobs to an employer where you were contracted in. All that stopped in 2016, but there are effects on the magnitude of the worker's new state pension as a result of deductions due to that worker being contracted out for a certain period in the past. My question was whether it was possible for somebody who was contracted out in the past to attain a full new state pension, which would thus put him in a better financial position compared to somebody who had worked for the same length of time, but always contracted in.

[Lootman]

Get your friend to register for a Personal tax account. They will be able to see their current state pension and what their max might be if they carry on working and how many years it will take to reach this max."

For those like me who do not want a personal tax account you can also get the same information by ringing and asking for a paper statement.

When I did this I got two statements: one from DWP with an estimate of my current state pension entitlement, and one from HMRC showing my contribution record, which back years I can buy, and how much each year costs.

By buying seven back years I was able to get my estimated state pension above the maximum possible under the "new" scheme.

[Nimrod103]

Get your friend to register for a Personal tax account. They will be able to see their current state pension and what their max might be if they carry on working and how many years it will take to reach this max."

For those like me who do not want a personal tax account you can also get the same information by ringing and asking for a paper statement.

When I did this I got two statements: one from DWP with an estimate of my current state pension entitlement, and one from HMRC showing my contribution record, which back years I can buy, and how much each year costs.

By buying seven back years I was able to get my estimated state pension above the maximum possible under the "new" scheme.

Presumably that is because your base amount (calculated under the old scheme, including the extra years bought up to the 30 maximum, and your S2P contributions) is more than what you would get under the new scheme (calculated at 35 years contributions). Therefore it is the calculation under the old rules which is what you will get.

[Lootman]

Get your friend to register for a Personal tax account. They will be able to see their current state pension and what their max might be if they carry on working and how many years it will take to reach this max."

For those like me who do not want a personal tax account you can also get the same information by ringing and asking for a paper statement.

When I did this I got two statements: one from DWP with an estimate of my current state pension entitlement, and one from HMRC showing my contribution record, which back years I can buy, and how much each year costs.

By buying seven back years I was able to get my estimated state pension above the maximum possible under the "new" scheme.

Presumably that is because your base amount (calculated under the old scheme, including the extra years bought up to the 30 maximum, and your S2P contributions) is more than what you would get under the new scheme (calculated at 35 years contributions). Therefore it is the calculation under the old rules which is what you will get.

Exactly, although my total number of years is 27 rather than 30. I couldn't buy any more.

[gryffron]

I'm pretty sure I'm in the position described by mc2fool. My forecast says I have 35 years and qualify for full pension. Sadly, it gives no details as to why.

I was contracted out for a few years and in for some. I still have the contracted out pot in addition.

I suspect (though it doesn't say) that this is due to my S2P contributions adding up to > contracted out deductions, as mc2fool said, as I have no surplus years. I contributed exactly 35 years. The last few as voluntary Class 2s. I would have carried on if it were worth any more.

Gryff

[mc2fool]

I'm pretty sure I'm in the position described by mc2fool. My forecast says I have 35 years and qualify for full pension. Sadly, it gives no details as to why.

I was contracted out for a few years and in for some. I still have the contracted out pot in addition.

I suspect (though it doesn't say) that this is due to my S2P contributions adding up to > contracted out deductions, as mc2fool said, as I have no surplus years. I contributed exactly 35 years. The last few as voluntary Class 2s. I would have carried on if it were worth any more.

You say you have 35 years and qualify for full pension, and by that I take it you mean exactly a full new state pension, i.e. £168.60pw. If that's the case then I expect, given what else you've said, that you've got a 2016 "starting amount" a bit less than that and you've made it up to exactly that with post-2016 years.

But in any case, you can work out the "why". First work out your "starting amount" and then proceed from there. What's needed is:

the number of up-to-and-including 2015/16 qualifying years you have (irrespective of when you acquired them)
your COPE
the number of 2016/17 and onward qualifying years you have

[Lanark]

A question has arisen elsewhere which I just no longer have the mental capacity to handle.

A worker who used to be contracted out, continues to work post 2016 under the new scheme. If he works for long enough under the new scheme, does there come a point where he can receive the maximum new state pension (currently £168/week)?

If that was the case, he would be in a more advantageous position than another worker who had been contracted in before 2016, because he would have a private pension in additiuon to his state one.

Is that correct?

Sorry. I'm confused. I thought people in the past contracted out of SERPS?

AiY

No, it was possible to work for one employer, contracted out, then move jobs to an employer where you were contracted in. All that stopped in 2016, but there are effects on the magnitude of the worker's new state pension as a result of deductions due to that worker being contracted out for a certain period in the past. My question was whether it was possible for somebody who was contracted out in the past to attain a full new state pension, which would thus put him in a better financial position compared to somebody who had worked for the same length of time, but always contracted in.

You need 35 qualifying years to get the full new State Pension.
So if they only started in 2016 they will need to work until 2051

With a retirement in 2051 the youngest they can be is 2051 -67 = DOB 1984
such a person could have had a private pension from 2002 until 2016, so a possible 14 years of extra pension.

There will also be plenty of people born before 1984, who were contracted out and (assuming their private pension is not good enough) will have the choice of retiring at 67 with a lower state pension or working longer until they have made up the 35 years.

and of course people retiring with less than 10 years of contributions will get zilch under the new system. So if you were just a few years off retirement age in 2016 having been contracted out since 1978, tough luck!

[mc2fool]

You need 35 qualifying years to get the full new State Pension.
So if they only started in 2016 they will need to work until 2051

With a retirement in 2051 the youngest they can be is 2051 -67 = DOB 1984
such a person could have had a private pension from 2002 until 2016, so a possible 14 years of extra pension.

Such a person would then have 16 qualifying years (14 from working and 2 credits for just being 16 & 17), and so would have a 2016 "starting amount" of (at least) £68.90, and so would only need to work a further 21 years to 2037 to get the full new state pension (when they eventually reach 67).

There will also be plenty of people born before 1984, who were contracted out and (assuming their private pension is not good enough) will have the choice of retiring at 67 with a lower state pension or working longer until they have made up the 35 years.

and of course people retiring with less than 10 years of contributions will get zilch under the new system. So if you were just a few years off retirement age in 2016 having been contracted out since 1978, tough luck!

Such a person would have a 2016 "starting amount" of (at least) £129.20, the full old system state pension, and would get the full new state pension with a further 8 years of NICs after that.

Years that you are contracted out are still qualifying years and pre-2016 years still count towards the new state pension.

The "35 qualifying years to get the full new State Pension" is only unequivocally true for anyone without any pre-2016 qualifying years. For anyone who has any qualifying years before 2016 (earned, voluntary or credits) and is retiring after it's more complicated. https://www.gov.uk/new-state-pension/how-its-calculated