Pension calculation mistake?

Until one comes along, a few comments....

No - but they do relate to funds provided by government (indirectly - through NI rebates to employee & employer).

Yes - but presumably she is getting a widow's pension from whatever pension scheme your late father contracted out into.

The cap itself may be unfair - but the way it is implement wrt contracted out deductions isn't. The rules should treat people in the same way whether they were contracted out or not.

The "inherited COD" theoretically should mean that she gets a protected rights widow's pension from the scheme your father contracted out into (may be part of a company pension) of about the same amount as the COD (but may be more or less depending on fund performance etc).

So if the COD was excluded from the cap, then by contracting out you avoid the cap, this would be unfair to people who didn't contract out. Remember the COD results from NI rebates which are paid to some other pension scheme which should provide the same sort of amount as the COD.

Remember that she *is* (or should be) benefitting from your late father's NI contributions through a widows pension from the scheme he contracted out into.

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I think the real grievance here is that the Pensions Service are applying the cap for additional state pension (that should relate to a

100% SERPS pot) to a total pot of money that mostly isn't managed by them.

In the literature sent to my mother by the Pensions Service, they do not enquire as to the size of the payments made by the scheme funded by the contracted out deductions and indeed, it is no concern of theirs. For example, I am pretty sure that if the COD funded scheme had performed badly and the payments were to fall behind what could have been expected from SERPS, the Pensions Service would not be making up the difference!

The fair way to apply the Additional State Pension cap would be to apply it proportionally to the SERPS part of the total additional pension pot. This would work as follows:

Total additional pension: £184.21

Contracted out deductions: £137.14

Additional pension from SERPS alone = 184.21 - 137.14 = 47.07

Percentage of total additional pension that is SERPS = 47.07 / 184.21 (x100)= 25.5%

State additional pension cap to be applied in this case = 0.255 x 146.12 = £37.26

So, the final total State Pension that would be received in this case using this (fair) calculation would be:

£84.25 (basic State Pension + £37.26 (Additional Pension) + £5.98 (Graduated Retirement Benefit)

= £127.49

"J Walsh" wrote

Exactly - as far as they are concerned, they assume that the other provider pays exactly the COD.

If the other provider pays more, then you win by contracting out. If the other provider pays less, then you lose by contracting out. That's the choice!

"J Walsh" wrote

That is *not* a "fair" calculation! It would mean that anyone could lessen the impact of the cap simply by contracting out...

"J Walsh" wrote

Firstly, ignore the BSP & GRB - they are not relevant to the issue.

Before the inherited additional pension, your mother would have been receiving something close to 111.44 in total (made up of ( 111.44 - 88.36 ) = 23.08 from the state, plus around 88.36 from elsewhere - where the contracted-out rebates were directed to).

With the inherited additional pension, if the state increased their payment to 37.26 as you suggest, your mother would receive something close to 174.40 in total (made up of 37.26 from the state, plus around 88.36 from where your mother's contracted-out rebates were directed to, plus around 48.78 from where your father's contracted-out rebates were directed to).

Thus the effect of your method of calculation is therefore to restrict the impact of the cap so that it only reduces the 184.21 down to

174.40, rather than reducing it down to 146.12 -- (assuming that the contracting-out providers perform in-line with the COD figures).

When the state's payment is reduced to 8.98, then your mother will receive something close to 146.12 in total (made up of 8.98 from the state, plus around 88.36 from where your mother's contracted-out rebates were directed to, plus around 48.78 from where your father's contracted-out rebates were directed to).

The *only* difference between this situation and if your parent's hadn't contracted-out, is *solely* down to any difference between (A) the payments from where your parent's contracted-out rebates were directed to, and (B) the "expected" amounts of these, ie the CODs. That is, the difference is due to the performance of those providers.

It doesn't matter - it's money that comes from NI rebates, and the govt set strict rules on how that money can be invested and used ("protected rights"). It's not the management of the fund which is the issue, it's where the money came from.

No. By contracting out you gamble that you can do better than the state.

Nor would they be reclaiming the difference if the COD funded scheme performed well.

So then you escape the cap (for the COD funded part) by contracting out. That isn't "fair".

Although I think that if the COD actually exceeded the capped additional pension, you'd then avoid some of the cap - the state payable additional pension would then be negative but I don't think they can touch the basic state pension to claim this.