The Pension Paradox: A Lifetime of Contributions, Yet Less Than Full State Pension

Introduction

A pensioner who worked for 50 years has found he will not be eligible for the full new state pension despite having worked for 50 years and made National Insurance contributions for five decades. GB News reader Keith Pitt, 69, from Devon, has not been able to claim the full new state pension despite having worked since the age of 16. Pitt will get ￡974 a year less than the full pension this new tax year.

Background

Before this month’s triple lock rate increase, Pitt received ￡749.12 every four weeks from the state pension. Now, he will get ￡812.79 every four weeks which is significantly less than the full new state pension rate of ￡884.80. On top of this, Pitt gets no other pension-related benefits from the Department for Work and Pensions (DWP).

Keith Pitt explained: “I worked for 50 years paying National Insurance from the age of 16. Never unemployed or claiming benefits. Having looked at my National Insurance record on the Government’s website there are no shortfalls or any missing payments.” According to the 69-year-old, he opted out of the State Earnings Related Pension Scheme (SERPS) which was introduced in 1978 as a top-up to the basic state pension. The sum a claimant would get was based on their contributions during their working life with someone being eligible if they were an employee making Class 1 National Insurance Contributions.

Self-employed individuals were never eligible for SERPS which was replaced by the second state pension in April 2002. Under state pension rules prior to 2016, workers could choose to opt out of their SERPS which many were advised to do. If someone chose to do this, some of their National Insurance contributions were either lower than people who were not contracted out or paid into another private pension.

The SERPS Complication

However, even when taking these 10 years into account, Pitt still thought he met the criteria to get the full state pension entitlement due to paying 35 years’ worth of contributions to National Insurance. Pitt slammed the decision by the DWP to award him less than the full amount, calling it blatantly “unfair”.

Keith Pitt stated, “It has impacted me. Before, I was entitled to the state pension. This seems like a policy decision that has left people like me working all their life in a negative situation. It seems very unfair that someone never working in their life would receive a full pension. I know somebody who opted out just before me who got the full pension. Somebody I worked with, who again opted out, had a lower pension. In 2021, he rang the pensions department and came back with a full pension. The thing that’s unfair, even if you take the 10 years off, I’ve still got 40 years of National Insurance [contributions].”

Source: https://www.gbnews.com/money/state-pension-unfair-dwp-decision

TPD’s Perspective

Mr Pitt highlights the perceived unfairness and financial impact of his reduced state pension. Despite making consistent National Insurance contributions for 50 years, he receives less than the full new state pension. Mr Pitt's experience underscores his frustration with the system, particularly in comparison to others who have received different outcomes despite similar circumstances. His reflections reveal a deep sense of injustice, especially when contrasting his situation with those who have not worked or contributed as extensively.

My Analysis and Advice

“ I’m in some agreement with Keith; it is unfair that Nation Insurance contributions made over approximately 50 years make no improvement to the state pension, especially being above the qualifying period.? Separate to this is Keith’s aggrievement at having a reduced State Pension as a result of contracting out of SERPs – his feelings in my opinion are fair, (although unsurprising as it has been badly handled by the bureaucrats!)

Firstly, a little backstory to explain my opinion.?Many things that were popular in 1980’s are no longer thought of in the same way.? The government has made its usual U-turn and went from actively promoting contracting out of SERP’s to stopping it altogether.? Its stance now; it doesn’t want you to be better off, or worse off for contracting out – Hence the reduction in the State pension for those that did (after all NI contributions were redirected from the government to a private pension provider).? Whether you may be better or worse off, will come down to the choice of the private pension fund and its performance and generally I think the government are fairly conservative in the reduction of the state pension.?

What Mr Dodds doesn’t mention in the article, is that he now has an additional private pension, that in my experience is usually worth ￡30,000 - ￡90,000 (depending on length of time of contracting out and performance etc).? Obviously, someone who hasn’t contracted out won’t have this extras pension income.?What this really does show, is the importance of knowing where your SERP’s pension is and how its performing.?Those aged 50 -70, would have been in there 20’s and 30’s when contracting out was popular and may of course may not recall who the pension was with.?

This is why TPD Wealth Management offer a free consultation service to help track these down for clients who believe they may have contracted out, or simply don’t know where their pension contributions ended up during this period.”

Conclusion

Keith Pitt's case highlights a significant issue within the state pension system, where long-term contributors may not receive the full pension they expect. The complications arising from the SERPS opt-out policy and government shifts in pension regulations have left many, like Mr Pitt, in a difficult financial situation. This case underscores the need for individuals to stay informed about their pension status and for potential reforms to address these perceived injustices in the pension system.