Up to 10 million UK savers risk losing £20,000 due to inflation issues with their state pension
London: Up to 10 million savers in the UK might be in trouble. They could be £20,000 worse off because part of their state pension isn’t linked to inflation.
This issue mainly affects people who opted out of the state pension. If you did this, some of your pension may not have kept pace with inflation.
Those who contracted out between April 6, 1978, and April 5, 1997, should pay attention. They might face an inflation timebomb when they retire.
When you contracted out, your National Insurance payments didn’t go into the state earnings-related pension scheme, known as Serps.
Instead of paying HMRC, your employer put part of your National Insurance into your private pension. This meant lower contributions for both you and your employer.
However, the state pension part, called guaranteed minimum pension (GMP), wasn’t indexed properly. It has a cap of 3% for post-1988 GMP.
This problem mainly affects those in private final salary schemes. Public sector workers had their GMP linked to inflation, so they’re not as affected.
If you retired on or after April 6, 2016, you might be impacted by these changes.
A campaigner mentioned that private final salary scheme members are hit hardest. Public sector workers are better off due to inflation-linked GMPs.
A spokesperson from the DWP advised anyone worried to check the online factsheet about the changes. They should contact the department if they think they’re affected.
The spokesperson added that these changes only impact those who reached state pension age from April 6, 2016, who can benefit from transitional rules.
How to Check if You Were Contracted Out of Serps:
You can find out if you were contracted out by:
- Looking at payslips from before April 2016
- Contacting your pension provider
- Checking your state pension forecast
- Reviewing any documents for references to contracted out rights
