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<p>The impact of recent pension reforms on people who were contracted out of the additional
pension system (and therefore have an entitlement to a guaranteed minimum pension
as part of their private pension provision) is dependent on personal circumstances,
and there are a multitude of scenarios which can result in a range of different outcomes,
both positive and negative. It is not, therefore, practical for government to give
general advice to this group; and nor is it an effective use of resources to issue
personalised advice to everyone in this situation. The best way for someone who is
has been contracted out to find out their state pension provision, and therefore plan
their overall later life finances, is to use the ‘Check your state pension’ service.</p><p>The
forecasts contained in the Check your State Pension service, as far as is practical,
take all impacts into account for an individual when determining their state pension
entitlement. Since February 2016, over nine million Check your State Pension forecasts
have been viewed.</p><p>In the paper ‘New State Pension: impact on an individual’s
pension entitlement – longer term effects’ published by the Department on 14 January
2016, we said:</p><p><em>The final group potentially affected by changes in uprating
mechanisms are those who have been contracted-out of the additional pension system
at some point in their working life. This is particularly the case where people were
contracted-out between 1978/79 and 1987/88. Under the current system these people
are awarded an amount of SERPS which is uprated by CPI once in payment. A contracted-out
deduction is also made to account for the fact they paid a lower rate of National
Insurance, which reduces the amount of SERPS they receive. The individual receives
a broadly equivalent amount to the contracted-out deduction of Guaranteed Minimum
Pension (GMP) which is paid by the scheme. There is no requirement on schemes under
general occupational pensions and social security legislation to uprate GMPs accrued
between 1978/79 and 1987/88. Therefore under the current State Pension system contracted-out
deductions relating to this period are not uprated. Since SERPs is uprated by CPI,
the amount of SERPS received after a contracting-out deduction is made can grow over
time. This complex arrangement will end under the new State Pension system and could
lead to some people getting a lower notional outcome.</em></p><p><em> </em></p><p><em>However,
there are two key factors that offset these potential notional losses. Firstly, this
group will be highly likely to benefit from more of their pension being uprated by
the triple lock as explained above. Secondly, people with periods of contracting-out
on their National Insurance record are likely to be able to build additional qualifying
years from 2016/17 which will add 1/35th of the full nSP amount to the amount they
receive, up to the full rate.</em></p><p>We have reformed the system to replace it
with a simpler one for the future which allows people a clear idea early in their
careers of what the state will provide, so they can make their own additional savings
plans. www.gov.uk/check-state-pension</p>
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