Published On: Tue, Nov 24th, 2020

State pension UK: Court ruling on contracted-out rules may lead to ‘expensive’ pay-outs | Personal Finance | Finance


For those who would have qualified for basic and/or additional state pensions, it may have been possible to “contract out” of the additional state pension entirely. Some people may have been able to contract out of the additional state pension if their employer(s) ran a contracted-out pension scheme.

This scheme allowed both workers and employers to pay National Insurance at a lower rate.

As such, contracted-out members did not contribute to the additional state pension and instead built up workplace pension schemes.

According to the government, the extra pension from a contracted-out pension scheme is usually the same, or more than, the additional state pension should the person involved not have contracted-out.

Currently, retirees can check if they were contracted-out by checking their old payslips or contacting their pension providers.

READ MORE: Brexit impacts on savings, mortgages and pensions explored

This could have huge ramifications and may lead to revaluations which could result in many retirees receiving boosted payments worth thousands.

As Nigel Green, the chief executive and founder of deVere Group, explained: “This landmark ruling means up to a million savers are now entitled to have their payments recalculated.

“The pension top-ups for some savers will run to several tens of thousands of pounds.”

He continued: “This will be an expensive blow and an administrative nightmare for many businesses who will now need to trawl decades of data and then shell out this money to these pension holders.

State pension payments will largely be dependent on when a person reached state pension age as the government changed the retirement system in 2016.

Most people will now qualify for the new state pension going forward but some people will receive the basic state pension if they reached their retirement age before a certain date.

Men who were born before April 6 1951, or women who were born before April 6 1953 would have received the basic state pension when they reached their retirement age.

Currently, the full basic state pension is £134.25 per week, which requires 30 years of National Insurance contributions.



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