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Contracted out of second State pension without realising. What implications?

(31 Posts)
WhoTheFuckIsSimon Sun 27-Mar-16 09:36:18

I'm 40yo and have worked for the nhs for the last eight years. I'm not in a final salary pension scheme but a defined contribution one if that makes a difference. From next month my take home pay goes down by 1.5% as apparantly nhs workers paid less Ni and were therefore opted out of the full state pension......I had no idea about this and am a bit pissed off. I would rather have been paying that 1.5% for the last few years and have the fUll pension.

Prior to working for the nhs I had three years of not working while doing my degree so no NI contributions. Although had a small child so think I got my "stamp"???

Before that I worked for a large private firm for six years but was in a final salary scheme so am worried that I was also opted out then.

From the age of 16-21 I had part times jobs while at college and Uni. Paid properly with pay slips and I assume I paid NI. I had a rubbish job for two years after finishing uni with no pension. So I might have about 7 years of NI contributions there.

So I'm 40 now. Was planning on working for another 20 years but not really wanting to work past 60 (I have a plan to finance this).

So I'm worried I won't have enough years of full NI contributions to get a full pension. I will be paying full NI from now onwards but I read you need 35 years of full contributions to get the full pension and don't think I will do this.

If I pay 20 years of full contributions will I get a pension between the flat rate and full rate or is it just a case of if you don't have 35 years you just get the flat rate?

WhoTheFuckIsSimon Sun 27-Mar-16 14:30:52

Anyone? Sorry, I know pensions are boring! grin

jamtartandcustard Sun 27-Mar-16 15:12:33

I don't know much about pensions but you can phone hmrc or fill in a form to request a pension statement and see what you are likely to get in retirement as it stands now. Then go from there

titchy Sun 27-Mar-16 15:15:30

I thought it was an either/or - if you have an employee pension you're automatically contracted out of the full state pension and only entitled to the basic pension. If you have no employer pension you're contracted in to the state full pension. I don't think it's possible to be contracted in AND have an employer pension.

Piemernator Sun 27-Mar-16 15:34:00

Call these people www.pensionsadvisoryservice.org.uk/contacting-us

You were contracted out years ago as was I as a public sector worker. The contracted out bit of mine is now held with Aviva. The being able to be contracted is about to stop as of April 2016.

If you have DC and received child benefit I think that can make up to 12 years of contributions.

This is the page of Which magazine so to be trusted www.which.co.uk/money/retirement/guides/contracting-out-of-state-second-pension-s2p/what-contracting-out-means/

WhoTheFuckIsSimon Sun 27-Mar-16 16:02:33

I'll try contacting people on Tuesday and see what they say. But Google suggests only people age 55 and over can currently get a pension forcast but maybe they can give me some more general advice.

Am really worried as I only work part time so pension will be about 5k a year. If state pension then not full pension it's going to be very tight. I think due to being part time I would have been far better off not being opted out and getting the full state pension.

titchy Sun 27-Mar-16 16:06:22

Paying AVCs will boost your pension pot.

WhoTheFuckIsSimon Sun 27-Mar-16 16:10:59

I've read that voluntary contributions are only possible for years where you've paid no NI, but not for years where you've paid a reduced NI contribution.

G1raffe Sun 27-Mar-16 16:13:33

Would this affect me too? I taught for a few years and do very part time now (2.5 hours a week).... I've not really thought about it before. Teaching wasn't enough to build up a pot at all am I going to be left without?

Lindy2 Sun 27-Mar-16 16:29:45

If you are paying National Insurance or the claimant of child benefit you are building up a contribution record for your future basic state pension.
The contracted in or out part is a possible extra to your state pension on top of the basic state pension. Trying to keep it brief but generally you can either:
1. Be paying a higher rate of NI to build up the basic state pension plus the extra.
2. Be paying a lower rate of NI and building up just the basic state pension.
3. Be paying a higher rate of NI and building up the basic state pension plus having some of your NI invested for you in a personal pension plan.
It is complicated but realistically a lot of people will have a combination of all 3 of the above, depending on where they were working and the type of pension they were in.
You might have been contracted out of the extra but you would still have been paying towards your basic state pension benefit.

IvyWall Sun 27-Mar-16 16:31:01

Lots of information on gov.uk.

www.gov.uk/browse/working/state-pension

TheAuthoress Sun 27-Mar-16 16:40:40

Don't panic. Basically you've been getting a NI rebate each month as the pension scheme you are in contracts out of the state second pension. You've still got your full NI years to date. The state second pension was an additional, salary related part of the basic state pension, for employees who contracted out it was presumed they would receive this part back within their occupational pension upon retirement.

State second pension, based on salary, is now being phased out anyway. So from next month you wonT receive your NI rebate each month, you'll pay the normal rate of National Insurance. The rebate was 1.4% so not a massive amount.

WhoTheFuckIsSimon Sun 27-Mar-16 16:45:58

But if it means that I will get £115 a week rather than £145 then that's a big difference.

VertigoNun Sun 27-Mar-16 16:54:06

Marking my place as I was contracted out too.

titchy Sun 27-Mar-16 17:21:12

But your occupational pension is supposed to cover the difference. That's the purpose of it, and why your NICs are lower. You can't do both, at least you haven't been able to up to now. Pay AVCs if you think your occupational pension will be too low.

Lindy2 Sun 27-Mar-16 17:39:54

Who knows what you'll get in 27 years + Simon. The state pension is still a relatively long way off ( and getting further away ).
I have been contracted in and out of the top up pension at different points in my working life. When I had a choice I opted out. I was never keen on paying for a state benefit which changes so much. We don't really know how much or when until we actually quality for it.
If when you get to state pension age the top up has been reduced or even abolished, you'll be glad you were opted out. If it is still around you might get a bit less state pension but you have until now had the benefit of more salary in your hands each month due to the lower NI you have paid.
It looks like you'll have about half your working life in and half out. Some might say that that is quite a good balance.
You say you have a plan to fund yourself from stopping work at 60 up to your state pension age, whatever age that ends up being. The Government still has plenty of time to change it about more. You need to factor a lot of variables into that planning.

MsRinky Sun 27-Mar-16 21:48:19

The top up is abolished as of 6th April 2016, after which there will only be one state pension. All the info you need is at www.gov.uk/new-state-pension

ChessieFL Sun 27-Mar-16 22:07:17

If you work for the NHS you will almost certainly have a salary-related scheme, not defined contribution, which will pay you far more than you would have got from the state second pension.

WhoTheFuckIsSimon Sun 27-Mar-16 22:10:24

Sorry, it's defined benefit, not defined contribution.

I'm looking at a pension of 5k a year from it. So 5k a year plus whatever basic state pension is left.

ChessieFL Sun 27-Mar-16 22:18:09

Yes, you will get far more from the NHS scheme than you would if you hadn't joined it and had paid the additional NI.

As a member of the NHS scheme you couldn't choose whether or not to be contracted out of the additional state pension - it's an automatic part of the NHS scheme. Therefore your only choice would have been to opt out of the NHS scheme completely, and then you would have lost all the employer contributions which will be about twice whatever you're paying in. I know £5k pa isn't a lot but it is more than the additional state pension would be for the same period.

titchy Sun 27-Mar-16 22:26:00

THEN PAY MORE INTO IT!!!

WhoTheFuckIsSimon Sun 27-Mar-16 22:48:14

I don't think I can choose to pay more into it can I?

WhoTheFuckIsSimon Sun 27-Mar-16 23:01:15

Ive googled and it looks like I can pay more in so will look at doing this. There's some arguement though that it's not part of the pension scheme proper though so not any more benefit than an isa.....with the downside of lack of accessibility.

I found an additional contribution calculator but am very confused. Am I right in thinking that if I put a 5k lump sum in now it would be worth over 40k in 25 years? That sounds good?

titchy Sun 27-Mar-16 23:27:45

You can probably chose either money purchase AVCs or to buy additional years service. You've linked to the first one. I'm fairly sure most public sector schemes allow you to also purchase years. The advantage of pension contributions over an ISA by the way is that the contribution is made from pretax income. An ISA is paid into from taxed income.

WhoTheFuckIsSimon Sun 27-Mar-16 23:33:33

Thanks, will ring the pension officer at work next week as well.

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