The Pensions Trust tackles state pension confusion

Members of schemes that are contracted out can forego the additional state pension in favour of a top-up from their employer. However, it is due to be abolished in April next year, increasing the cost of contributing for both schemes and members. 

But Paul Murphy, head of strategy and business development at The Pensions Trust, said there was a lot of confusion about the levels of benefit people were entitled to, and the scheme was planning a communications drive to inform its members.

“On our website we have information on retirement and state pension benefits, but we can’t possibly know what each individual is entitled to, so we encourage people to link through to the government website.”

The scheme has a retirement calculator on its website, which will be updated for April next year to account for the new rules. It is also planning a member newsletter in March/April next year that will provide information on the new state pension.

Research conducted by the Open University on 2,001 employees aged 30 or older, published last week, showed that 60 per cent of employees are unaware that those who have been contracted out may not receive the full amount under the new state pension.

Members may find they receive less than the full amount under the new state pension if they were contracted out prior to April 6 2016 or have fewer than 35 qualifying years of national insurance contributions.

In addition, 24 per cent of respondents were unsure whether they had ever been contracted out.

Communicate with members

Martin Upton, director of the Open University’s True Potential Centre for the Public Understanding of Finance, said: “The key point [schemes] need to make members aware of is, in terms of state pension, they should be investigating what their entitlement is… The fact the flat rate state pension isn’t a flat rate pension isn’t well recognised.”

He added: “The message has to be, as with in personal or occupational pensions, find out what your position is.”

Fuat Sami, partner at law firm Sackers, said schemes should be communicating the effect of the changes to their members.

He said: “Come sixth of April next year they won’t get the NI rebate, so their contribution will go up overnight. They need to be telling members this is something that will affect their contribution levels.”

He said the end of contracting out may not leave members worse off, despite being seen as the final nail in the coffin for defined benefit schemes.

“You will be getting a new state pension you won’t have been getting before, so there’s an element of trade off,” Sami said, adding that whether the change was good or not “really does depend on what changes the scheme or employer is making in response”.