A new day has dawned
This is the first thing I thought as I work up at 4.30 am today;
“At last and at least I understand my state pension statement” –
Famous first words.
At 5.15 am this morning I wrote a blog satisfying myself that at last I understood my state pension entitlement which kicks in around 52 months time!
At around 8 am I published to an expectant world -and at around 8.30 am , Steve Webb posted this (and I replied)
I can’t believe that I am going to get the full state pension, my GMP from my company pension and a pot of money from contracting out through a personal pension. But it looks like I will! I’m going to get £260 pw when you count back in my COD/COPE! That’s assuming Sir Steve, (who is fast becoming my new best friend), tells me so. Here’s the latest from the DWP
You will notice that I am getting £221.20 and all that stuff about contracting out is irrelevant!
Stancombe
My personal journey to an understanding of my state pension statement has been as tortuous as the Buddha’s to self-enlightenment or Damian Stancombe in counting down to retirement. Maintaining enlightenment will be easier for me but getting to a point where I knew what I was and wasn’t getting paid from the State, my personal pension and my occupational pension has been an odyssey.
I use myself as a case study, so others may follow. I appreciate that wiser folk – such as Steve Webb, Andy Young and David Robbins will not be surprised at the result of my research but I suggest I may be one of the first to have ever published their personal account .
Mine is relatively simple, I had only one contracted out employment, only used one personal pension to receive one national insurance rebates. I had some SERPS entitlement which has carried over to the single state pension, my contracting out deduction is modest and properly stated, I can check my years qualifying for credits going back to 1977 (when I turned 16). Anyone who doesn’t think the state pension has legs, should contemplate that final statement. If I do live to 89, my state pension journey will 73 years long!
Let’s start by looking at my theoretical entitlement to state pension. This has been recently updated to take into account the hefty improvement from the triple lock last year.
I will not get £221.2o per week from the state as a pension, I will actually get that amount (not) less £38.87pw. The Cope is not paid (lucky me) on top of my state pension but from it.
The amount of additional State Pension you would have been paid if you had not been contracted out is known as the Contracted Out Pension Equivalent (COPE).
Contracted Out Pension Equivalent (COPE)
Your COPE estimate is £38.87 a week
So I will actually get a weekly payment (though paid monthly) of £182.33 £260.07 (£790 pm – + £172pm) £38.87 pw. more than the headline figure (the dashboard figure).
The £38.87 per week will be paid in part by on top of my my occupational pension scheme in two parts.
I have had this message from my pension administrators (Railpen)
According to our records your GMP due to be paid under the Scheme from age 65 is £410.28 a year.
This is £7.89 pw – and for some arcane reason I get GMP from 65 not 67 (and there is probably some adjustment to my company pension coming my way for GMP equalisation and maybe for the bridging between my 65th and 67th birthday (I have this fun confusion to come).
Previous confusion resolved
This is where I got confused because I divided £410 by twelve and got a figure adjacent to £38.87 but there are of course 52 weeks not 12 in a year. A rooky error but one that I made (easily). Because of this month/week error, I thought that my GMP was my COD – it turned out to be less than a quarter of my contracting out deduction (COPE)
This takes care of about £8 pw of the COPE – (the Contracting out Deduction). What about the other £30?
Well this is supposed to be paid to me from my personal pension (which was with NPI and is now part of my one big pot with L&G). Thankfully I did my combining before the new red and yellow flag regime which would have had me up and down to MaPS faster than a tart’s knickers.
The £30 pw/ £1500 pa (odd) of pension I am not getting because it’s coming from my personal pension. I don’t know I got a good deal on this, but I suspect that I got a very good deal and I suspect that the £8 a week I’m losing gaining – on top of my state pension to get more occupational pension is also a good deal.
I am now amending my blog with the bits in red!
Good deal? It’s an absolute steal – I’ve got £38.87 pw for the rest of my life from 67 absolutely free – my only regret is that I missed a bit of SERPS contracting out – out!
It has to be said, only about 10% of personal pension pots get converted to lifetime pensions (annuities). 90% of people will not get a pension from contracting out of SERPS/S2P via a personal pensions – that’s freedom!
And how much you got from the steal good deal is the luck of the draw. Investing your rebates in Japanese equities since 1988 would make you a relative loser, investing in US equities – quite the opposite. Who could have known that back in the day?
But in general, it looks like people who contracted out and who can earn or buy back additional years to make up their full state pension credits (35 post 2016) are quids in. There are winners and losers from the single state pension launched in 2016, I am a winner, John Greenwood (my age and someone who stayed “in”- a loser). I owe you a drink John.
The amounts of money involved, considering my life expectancy – (89 according to the First Actuarial death calculator – thanks Mark Rowlinson) are impressive. Assuming the 20x multiple that we used for LTA purposes – my COD/COPE is worth £40,425. I’ll spell that out Forty Thousand , four hundred and twenty five pounds – for not being contracted in!
My journey to enlightenment has been long but seems happily resolved.
But I wonder how many people are able to take my path to enlightenment. While I am glad that I could pull together all this shit, will many others?
It is a great pleasure to have Sir Steve Webb (tug forelock) as my benefits adviser, I don’t think many will have that privilege!
How many people will ever know whether the decision they took to contract out via a personal pension worked out? How many will care?
How many people understand what a GMP is , let alone if it is fair and equalised – I still don’t!
We have pension dashboards coming up, and the state pension will be one of the items that will appear on them, alongside our personal pots and private pensions.
A new day has dawned – time for a drink?
