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did anyone work for a company that "contracted out" of the Governments pension scheme?

(17 Posts)
infoman Tue 10-Nov-20 07:12:21

I am not asking for financial advice,
just curious if any one thought it was a good or bad thing.

Marydoll Tue 10-Nov-20 07:20:46

Yes, both my husband and I. I was a teacher and my husband was a LA officer.
We are fortunate as I believe that few pension schemes are based on final salaries nowadays.

M0nica Tue 10-Nov-20 07:45:56

It happened to anyone in a company pension scheme. It wasn't something anyone had any choice about. You took a job, you were automatically enroled into the company scheme and that meant you were contracted out. On the plus side, the pension schemes were almost always based on final salaries, which are not available now, so I for one am not complaining.

Doodledog Tue 10-Nov-20 11:02:46

Something that a lot of people aren't aware of is that if you have been contracted out some of your NI has paid for your occupational pension instead of the State one, which reduces your entitlement to a State pension.

This can come as a shock if you have paid in all your working life and assume on that basis that you will get your occupational pension as well as a full State one - you probably won't.

You can, however, make up the difference by making voluntary contributions if you can afford them. It's galling to have to do it when you have already paid so much in and a lot of people have had their NI paid for them, but it can make a big difference to your pension.

The best advice is to look on the youGov website and check your individual situation, as there are so many variables. You will be able to see exactly what your pension forecast is, and why - it is also worth checking that their records of your NI contributions are correct, as it is not a given. If there are any errors it is better to get them sorted out in advance of your pension age.

FlexibleFriend Tue 10-Nov-20 11:27:09

I get a full state pension but it's less than the occupational pension which I only paid into for 11 years, so not great value for money. Get a pension forecast, I kept getting letters saying I should make up for years missed but I already had sufficient years.

Welshwife Tue 10-Nov-20 11:29:10

There have been a couple of different Govt extra pension schemes - Earnings related, Graduated pensions and SERPS. I was teaching and paid into the first two but was contracted out of SERPS. When I retired Earnings related and graduated pensions were added to my pension and are very small amounts - they have remained exactly the same amount since I retired.
My husband paid SERPS for as long as it was in action and when he first retired it made a big difference to the amount of pension he received but that payment has never increased either and so the impact it had has waned.
This worries me about the new pension plan the Govt introduced - people will think they will be fine when they retire but many will be disappointed after a few years unless they have some other sort of savings.

Cabbie21 Tue 10-Nov-20 12:13:23

Yes. I have a teacher's pension and SRP is reduced because of being contracted out, but altogether I think I get a reasonable amount, given the number of years worked.
However , for working for one year in France I get a further £26 a month - a small amount but relatively good for only 9 months work.
I also made additional voluntary contributions in UK and get a monthly annuity, so my four sources of income are more than adequate.
You just need to be aware of these things whist working and take up any opportunities to increase your pension whilst you can, at little cost, given the tax advantages.

B9exchange Tue 10-Nov-20 12:17:25

Yes, was contracted out for a bit, but paid to make up the difference.

Xander Tue 10-Nov-20 13:16:46

Doodledog says it all. Excellent information. Non of which I was aware of during my 38 years of public sector employment and the effect of automatic opting out by the organisation (how dumb was I) . I only became aware when I asked for pension forecast . I had expected to get a full pension at relevant age and questioned why I would not. I did make up NI contributions Luckily there is a great deal of information now for anyone thinking about pension plans etc.

Tigerdove Tue 10-Nov-20 13:57:12

Welshwife I find it odd your dhs serps pension has not increased as mine from 2012-2020 has increased by £28.96 per week; quite a tidy sum over the year

growstuff Tue 10-Nov-20 14:08:19

SERPS is no longer payable with the new pension, unless basic pension plus SERPS would be higher. In most cases, the new state pension is higher.

I had a few years of SERPS, which I've lost completely. I also won't be paid the full state pension, despite 47 years of full contributions because I paid into various occupational pensions. Most people, especially those on relatively high incomes, are better off with occupational pensions under the current rules.

I worked it out for myself when the new state pension was introduced, although plenty of people were in denial and told me I'd get it all (haha!)

I really do recommend that people go on to the government website and get an accurate forecast. If it doesn't look right, you can always dispute it.

M0nica Tue 10-Nov-20 16:50:08

Going back to the OP's question Was SERPS a good or bad idea? I think the answer is 'It depends'. Yes, it indicated you were in an occupational pension, which meant a higher pension than you would if you depended just on the state pension.No, it meant that part of your state pension was subsumed into your accupational pension.

What is much more concerning is, in the past, just how little women and some men know about the pension system, and how little they did to find things out for themselves rather than just rely on what workmates or a manager said to them. In fact I still think too many people put their heads in the sand over issues like this.

Luckyoldbeethoven Tue 10-Nov-20 18:00:08

That is absolutely correct M0nica. I was contracted out by a publishing company and as Doodledog said , there was no choice, it was just what happened.

I only discovered, on reaching state pension age, that despite working for 47 of my 48 years of working life and paying NI contributions all the way through, I apparently still owed the government around £4000 if I wanted a full state pension. Infuriating. So many women, born in the early 1950s have been cheated and we will never recover that money. Which Minister was it who said 'there will always be losers'. Not him I assume!

M0nica Tue 10-Nov-20 20:18:57

Luckyoldbeethoven There have been many unfairnesses and inequalities in the pension system that are gradually being removed. In the 1960s, if you worked for a company for less than 5 years, when you left, they just returned your cash, until 1990s (I think) if you worked part-time you couldn't pay into a company pension scheme. I 'lost' 12 years of occupational pension through those.

The one that had me shaking with anger, even though the amount was small, In the 1960s I worked for a company that gave staff personal pension schemes, so when I left, after 2 years, I was given a certificate to say that I was entitled to £10 a year pension (1968 values ), nearer £100 in current values. But at that point such pensions were frozen and fixed. So, although the insurance company concerned had my pension money invested for 35 years when I reached 60, it was still worth only £10 a year, or £162 after tax. I must have paid more than £162 into the fund at 1968 values, probably £2000 plus in current values.

A few years later the law was changed so that you got the capital appreciation and annual interest the money accrued, but too late for me.

Barmeyoldbat Tue 10-Nov-20 20:57:52

I was contracted out when I went to work for the local Council and was enrolled in their pension scheme which is a final salary one. I did well out it as I was retired on ill health grounds at 57 but my pension was made up to the age of 65 when I would have retired. It wasn't a massive amount but it has increased well over the years. My state pension is also ok.

infoman Sat 14-Nov-20 16:30:08

Thanks for all your replys,the scheme must have been for very big organisations.
I am lead to believe it was done as wages were very poor in the large organisations,so it meant more money in your wage packet and therefore except a lower state pension.
Can anyone recall what years the contracted system was in operation.

M0nica Sun 15-Nov-20 18:56:04

infoman'Contracting out' was introduced when SERPS (State Earnings Related Pension) was introduced in 1978( and abolished in 2002).

SERPS was an additional state pension, which was a top-up to the basic state pension and for which you paid extra NI contributions if you earned above a certain wage. I think when it started in 1978, it affected those earning over £113 a week (£5876 a year).

This is what Wikipedia says on the subject
When the scheme was established, employers with final-salary pension schemes could choose to contract-out of SERPS, provided they gave scheme members a Guaranteed Minimum Pension. In return for opting out of SERPS the employer would pay reduced National Insurance contributions.

Later other people, mainly the self-employed and those whose employers did not run a pensions scheme, were also allowed to opt out for the first time. Instead of providing a Guaranteed Minimum Pension these schemes had to pay the saving in National Insurance contributions into an approved personal pension scheme. To encourage the take-up of this arrangement the government made an extra incentive payment into each pension scheme where somebody contracted out using this route.

So, as you can see the 'Contracted out' scheme never affected your entitlement to the full Basic pension, only your entitlement to SERPS, so your idea that it affected basic pension entitlement and low paid workers, is not correct, in fact just the opposite. The people most affected by contracting out it were those on average and upward wages.

Like Barmyoldbat I did well out of it. My state pension was dinted by the years I wasn't working because of domestic responsibilities before the scheme that enables women not working because of caring responsibilities to have their pension payments kept up, came into existence.