Consolidation of Additional State pension and contracted out deductions after state pension age

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Dear Department for Work and Pensions,

I have been reading Pension Act 2011 -supporting documents produced by the DWP

Published 3 November 2011. From: Department for Work and Pensions

House of Lords Select Committee on Delegated Powers and Regulatory Reform

https://assets.publishing.service.gov.uk...

and in particular the following paragraph which covers increases later on in retirement.
Under consolidation, actuarial factors would be applied to a person’s contracted-out pension rights in order to smooth the disparities in entitlement that occur during retirement.
Under consolidation, actuarial factors would be applied to a person’s contracted-out pension rights in order to smooth the disparities in entitlement that occur during retirement. I believe it became law in November 2011 but without a actual start date.

Can you please confirm it did become law in November 2011 .

I believe it that due to the Pension Act 2014, which introduced the New State Pension in April 2016, consolidation of contracted out deductions was not implemented.

If this was the case can you please explain why it was not implemented.

Can you please confirm this and send me any correspondence you have had with the Treasury or any other Government department about not implementing consolidation of contracted out deductions and what was to happen about the old stem of paying GMP indexation via the way you calculated a persons notional additional state pension.
As consolidation did not happen can you tell me if the old law is still applicable as it was not replaced by consolidation of contracted out deductions. Was the old law reinstated. If not can you let me have any correspondence you have with Treasury or any other Government department.

Can you please tell me if Parliament has been told that consolidation of contracted out deductions was not implemented. If they were told let me have copy of any correspondence.

Was an Impact assessment done when it was decided no to implement consolidation of contracted out deductions was not implemented.
If one was done can you please let me have a copy.

The following attached for information from which you will see that a full Impact assessment was done for the original proposal as legislated for in the Pensions Act 2008.1

9. A full Impact Assessment was carried out for the original proposal, as legislated for in the Pensions Act 2008.1

The policy remains broadly unchanged so a further Impact Assessment is not necessary. Any proposal to bring forward the consolidation date would bring forward costs, but a start date for consolidation is yet to be decided. The measure would be broadly cost neutral over the long term.

21. Consolidation will have no impact on a person’s overall State Pension income
over the course of their retirement. As contracted-out pension rights are offset
against additional State Pension entitlement built up before 1997, a number of
people would only gain additional State Pension for that period at some time
after pensionable age. This is because differences in the way private pension
schemes increase rights in accrual and pensions in payment compared to the
State scheme can mean that at State Pension age a person's additional State
Pension entitlement for that period might be small, or non-existent, but
increase later on in retirement. Under consolidation, actuarial factors would
be applied to a person’s contracted-out pension rights in order to smooth the
disparities in entitlement that occur during retirement. This is likely to affect
around 11 million people who built up contracted-out pension rights between
1978 and 1997. As a result, there are short-term costs to the Exchequer
associated with consolidation, in that additional State Pension entitlement for
the pre-1997 period would be paid from State Pension age. However, the
measure would provide some flexibility as to when these costs would be
incurred.

https://assets.publishing.service.gov.uk...

Annex F - Other Pensions Act measures
1. Further details of the measures contained in the Pensions Act 2011 are
available in the Explanatory Notes accompanying the Act. These can
be obtained from
http://www.legislation.gov.uk/ukpga/2011....
Power to set date for commencement of additional pension
consolidation by order

2. With reference to Section 3.
3. Following the measures to simplify State Pensions introduced in the
Pensions Act 2007, the Pensions Act 2008 introduced measures to
further simplify the state second pension scheme, with the aim of
helping people to understand their entitlement.
4. The 2008 Act provides for earnings-related State Pensions built up
before the flat rate introduction year to be combined into a single cash
amount (a process known as consolidation). It also provides that only
people reaching State Pension age from 6 April 2020 would have any
earnings-related State Pension combined in this way. Based on the
legislated timetable for increasing women’s State Pension age, 6 April
2020 is the date that State Pension age for men and women is
equalised. The policy intention was that at State Pension age this cash
amount would be added to flat rate additional State Pension (built up
from the flat rate introduction year) and basic State Pension to form a
person’s overall State Pension entitlement.
5. Section 3 is a technical measure designed to provide flexibility as to the
period covered by consolidation, and the group affected. The clause
removes references to the start date as being the flat rate introduction
year. It also removes the provision that only those reaching State
Pension age from 6 April 2020 would be affected by consolidation. The
clause also provides an order making power for the Secretary of State
to set the date at which consolidation will occur and the group who will
have any earnings-related State Pension combined in this way.
6. All other aspects of the existing policy would remain the same. As
such, any earnings-related State Pension built up before the
consolidation date would be combined into a single cash amount based
on the rules in force at that time. The measure would have no impact
on a person’s overall State Pension income over the course of their
retirement.

PENSIONS ACT 2011 – IMPACTS – ANNEX F: OTHER MEASURES
7. As contracted-out pension rights are offset against additional State
Pension entitlement built up before 1997 a number of people would
only gain additional State Pension for that period at some time after
State Pension age. Under consolidation actuarial factors would be
applied to a person’s contracted-out pension rights in order to smooth
the disparities in entitlement that occur during retirement. This is likely
to affect around 11 million people who built up contracted-out pension
rights between 1978 and 1997.
8. Under consolidation the pattern of payments a person with pre-1997
contracted-out rights receives would change. Their entitlement would
be flattened over their retirement resulting in a greater amount paid
early in retirement and less paid later. The amount of any individual
gain or loss is measured relative to average life expectancy. There
would be no effect on the total retirement income of a person who lives
to average life expectancy; however, a pensioner who dies earlier than
average would gain with losses experienced by those who live longer
than the average.
9. A full Impact Assessment was carried out for the original proposal, as
legislated for in the Pensions Act 2008.1
The policy remains broadly
unchanged so a further Impact Assessment is not necessary. Any
proposal to bring forward the consolidation date would bring forward
costs, but a start date for consolidation is yet to be decided. The
measure would be broadly cost neutral over the long term.

Yours faithfully,

C. Thompson

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no-reply@dwp.ecase.co.uk on behalf of DWP Strategy Freedom of Information, Department for Work and Pensions

1 Attachment

Dear C Thompson,

I am writing in response to your request for information, received 13th
November.

Yours sincerely,

DWP Central FoI Team

Dear [email address] on behalf of DWP Strategy Freedom of Information,

Thank you for your reply of 21 November 2018,

1) Can you please confirm whether, under consolidation when the New State Pension started on 6 April 2016, actuarial factors were applied to a person's contracted -out pension rights in order to smooth the disparities in entitlement that occur during retirement?
If not, can you please explain why not?

2) If this was the case, please confirm why it was not implemented in the Pensions Act 2014?

3) If actuarial factors were not applied as mentioned in 1) above, can you please tell me whether Parliament had been informed that consolidation of contracted-out deductions did not have actuarial factors applied and the reason why this was not implemented? If Parliament was told, please let me have a copy of any correspondence.

4) As an an impact assessment was not done when it was decided not to implement actuarial factors in regard to consolidation of contracted-out deductions after a person reached state pension age can you please explain why not.

The principle of 'consolidation' was to not disadvantage those with contracted-out rights -- specifically those who had accrued a GMP between 1978 and 1997 -- then such removal should be subject to scrutiny by Parliament, given that 'consolidation' was a key feature in legislation from the 2008 Pensions Act until the 2011 Pensions Act.

5)How was this communicated by your department to the public,stakeholders/Parliament: (a) prior to, and (b) subsequent to, the Pensions Act 2014?

Yours sincerely,

C. Thompson

no-reply@dwp.ecase.co.uk on behalf of DWP Strategy Freedom of Information, Department for Work and Pensions

1 Attachment

Dear C Thompson,

I am writing in response to your request for information, received 23rd
November.

Yours sincerely,

DWP Central FoI Team

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