LCP explained that most people in this kind of pension will have a deduction from their state pension which does not exactly match the private pension they built up in replacement. In some cases, the deduction will exceed the amount of private pension built up.

Although contracting out was abolished for salary-related pensions in April 2016, past contracting out is still reflected in calculations for the new state pension.

Those who have years of contributions from 2016/17 onwards can gradually ‘burn off’ the deductions for past contracting out. Eventually they may be able to build up a full new flat rate pension in addition to their contracted out pension.

But LCP warned that in the early years of the new scheme, deductions for past contracting out can still leave them short of the full flat rate, even if they have 35 or more years of NI contributions.

Read More