I paid NI for 45 years so don’t I get a full state pension – please explain? Steve Webb replies

I have had 45 years of national insurance contributions, but I have been told I have a four-year contract.

As a result, I receive a reduced pension, reduced by £20 per week.

I have no idea when my contributions were outsourced and I have been told by HMRC that this period of outsourcing should earn me £20 per week.

Can I request a further assessment of my pension forecast and how can I discover who is executing the €20 per week? I’ll be 66 in June.

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Steve Webb replies: The issue of deductions from your state pension for periods when you have been ‘outsourced’ in the past is probably the most frequently asked question in my weekly mailbag.

I’ve explained the general idea of ​​a deduction for “outsourcing” in the past in a previous column: Why can’t I get a full state pension even though I have paid national insurance for 38 years?

This time I’ll focus on how to find the private pension you should get instead.

The answer to your question depends on the type of private pension you were part of.

Let’s start with traditional salary-related ‘defined benefit’ pensions.

A condition for being allowed to exclude part of the state scheme for a DB scheme is that it must provide at least as good benefits as you would have received if you remained fully covered by the state scheme.

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Between 1978 and 1997, this promise was known as a ‘Guaranteed Minimum Pension’ or GMP. After 1997, the rules worked a little differently, but the basic idea was the same.

Instead of building up rights through the SERPS, you built up a company pension and upon retirement you will receive money from that scheme instead of part of your state pension.

To track down that money, when you reach retirement age, they need to contact you and then start paying out a pension in accordance with the scheme’s rules.

The amount of this pension must be equal to – or often more than – the amount that has been deducted from your AOW.

However, I suspect you would probably remember that if you had worked for a company that had a DB pension scheme, so you may have a different type of pension.

The alternative type of pension is a ‘pot of money’ or ‘defined contribution’ scheme.

With a workplace DC scheme, your contributions (if applicable) plus those from your employer are added to a pot of money that is invested and grows over time.

Another common type of DC plan that was actively promoted in the late 1980s and early 1990s was a ‘personal pension’.

In some cases you didn’t even have to put your own money into a personal pension. It was simply supplemented by the government in the form of ‘National Insurance Rebates’, which you were paid because you had a contract.

These were known as discount-only personal pensions and I understand why you might remember less about a pension like this because you weren’t actually contributing to it.

If you are over 55, you can claim a DC pension in various ways. For example, you can use the pot to buy an annuity or an income for life.

Crucially, however, there is no guarantee that the pension you receive from this DC scheme exactly matches what has been deducted from your AOW.

The reason for this is that, years ago, when you took out a contract, the amount of national insurance rebates you enjoyed was based on an estimate of the investment returns these rebates would produce and the annuity rate you could expect upon retirement.

But since then, things haven’t gone as expected.

In many cases, the money that ended up in your DC pension pot in the 1980s or 1990s grew relatively well. But people reaching retirement age since the 2008 global financial crisis have generally experienced very low interest rates and annuity rates.

The result of this may be that the pension you actually receive from your DC savings may ultimately be lower than expected.

In summary: with a DC pension there is no specific reason to expect that the amount deducted from your AOW benefit will exactly correspond to the amount of annuity that you can now receive with your DC pot. In fact, it would be quite surprising if that were the case.

I would hope that if you had such a DC pension, often provided by a well-known insurance company, you would have some paperwork, such as annual accounts.

If you have no pension papers at all and you cannot remember being in a pension scheme at all, there is another option. This means that you have paid in a pension for a limited period, but then paid it out.

In the past, there were various rules that allowed people to reclaim their premiums if they had only paid for a few years. And you may have reclaimed your contributions decades ago, but have now completely forgotten about it.

In this case, there will still be a deduction from your state pension, as a result of your lower NI contributions years ago, but there may no longer be a pension to match that contribution.

It is hoped that when the pension dashboard finally goes live, people will find that they can easily find all their past pensions on one website. However, it will probably be a few years before we have access to dashboards and I imagine you would like an answer sooner.

So if this is still a complete mystery, HM Revenue and Customs should be able to tell you the name of the scheme (or schemes) you have been outsourced to.

You can then contact them to check whether you still have rights to the scheme. Let me know how you’re doing.