From: J Walsh 
Newsgroups: uk.finance
Subject: Re: Pension calculation mistake?
Date: Mon, 23 Apr 2007 09:03:03 +0100

Andy Pandy wrote:

> 
> No - but they do relate to funds provided by government (indirectly - through NI
> rebates to employee & employer).
> 
---SNIP---
> 
> Yes - but presumably she is getting a widow's pension from whatever pension scheme
> your late father contracted out into.
> 
> The cap itself may be unfair - but the way it is implement wrt contracted out
> deductions isn't.  The rules should treat people in the same way whether they were
> contracted out or not.
> 

---SNIP---

> 
> Remember that she *is* (or should be) benefitting from your late father's NI
> contributions through a widows pension from the scheme he contracted out into.
> 
> --
> Andy
> 
> 


I think the real grievance here is that the Pensions Service are 
applying the cap for additional state pension (that should relate to a 
100% SERPS pot) to a total pot of money that mostly isn't managed by them.

In the literature sent to my mother by the Pensions Service, they do not 
  enquire as to the size of the payments made by the scheme funded by 
the contracted out deductions and indeed, it is no concern of theirs. 
For example, I am pretty sure that if the COD funded scheme had 
performed badly and the payments were to fall behind what could have 
been expected from SERPS, the Pensions Service would not be making up 
the difference!

The fair way to apply the Additional State Pension cap would be to apply 
it proportionally to the SERPS part of the total additional pension pot.
This would work as follows:

Total additional pension: £184.21

Contracted out deductions: £137.14

Additional pension from SERPS alone = 184.21 - 137.14 = 47.07

Percentage of total additional pension that is SERPS
= 47.07 / 184.21 (x100)= 25.5%

State additional pension cap to be applied in this case
= 0.255 x 146.12 = £37.26

So, the final total State Pension that would be received in this case 
using this (fair) calculation would be:

£84.25 (basic State Pension +
£37.26 (Additional Pension) +
£5.98 (Graduated Retirement Benefit)

= £127.49