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Opt out of SERPS/S2P?
Comments
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I am no expert, and I have a little while to go yet before I retire, but the advice I was given earlier this year was to opt back into SERPS and most of my friends have also been advised to do the same.
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Legal and General are not recommending you contract back in. I have seen copies of their letters and they give no advice in it. There are suggested routes with certain scenarios but the letter does not constitude advice.His insurance company legal and general keep writing and saying he maybe better of if he contracts back into serps but as we will have very little income other than state pension would he be better off staying contracted out as if he took his private pension in a lump sum we might than qualify for some state benfits
The herd mentality is not the best way to get advice.I am no expert, and I have a little while to go yet before I retire, but the advice I was given earlier this year was to opt back into SERPS and most of my friends have also been advised to do the same.
If you are under 30 and investing in medium risk or higher funds (unit linked) then contracting out can still quite easily give potential for a larger pension than contracting in.
If you want to take the pension at an earlier age than state pension age (rising to 68) then you can only do this if you contract out.
Death benefits can be better on contracted out funds.
You can take 25% as a lump sum on contracted out funds but not from contracted in funds.
The state have reduced contracted in benefits 3 times already and in the increase to age 68 in the pension age is a fourth. Those that have contracted out have seen no reduction.
If the Govt move to a single state pension before you retire, your contracted in benefits are likely to be lost as they wont mean anything anymore. Contracted out benefits are likely to be retained by the individual. It would require primary legislation to claw it back and would hit the economy causing more damage than writing it off. Historically, the Govt has not clawed anything back in similar scenarios.
So, you have some advantages and some disadvantages and neither is a nil risk option. Its investment risk vs legislative risk and many people (majority it appears where choice is given) prefer to control their own pension and not leave it in the hands of a meddling Govt.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
new_girl wrote:my oh is due to retire in 5 years he only has a small private pension plan as he was out of work for several years and stopped paying into it and didnot restart when he started work again.His insurance company legal and general keep writing and saying he maybe better of if he contracts back into serps
Firstly he (actually both of you) should contact https://www.thepensionservice.gov.uk and get a forecast for how much he will get from the two state pensions (basic and SERPS).
Then he should get a transfer value for the L&G pension, so we can see how much of an annuity income it will provide.
After that it will be easier to see the best thing to do.but as we will have very little income other than state pension would he be better off staying contracted out as if he took his private pension in a lump sum we might than qualify for some state benfits
If you contract back in now, this will only affect the remaining contributions that he would pay up until he retires.The money that has been contracted out into the L&G pension will stay there, it will not be put back into the state pension system.
You cannot take the L&G pension as a lump sum.Only 25% of it can be taken in tax free cash, the rest must be paid as a pension income.
Why don't you collect some figures first and then come back for some more help? As you say the situation looks somewhat borderline benefits wise and you may be better building up cash reserves via the private pension than contracting back in.Trying to keep it simple...
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I'm assuming that this comment ignores the reduction in value of the rebate itself to those contracted out? (I'm assuming the answer is yes; I read the rest of the comment)dunstonh wrote:The state have reduced contracted in benefits 3 times already and in the increase to age 68 in the pension age is a forth. Those that have contracted out have seen no reduction.Conjugating the verb 'to be":
-o I am humble -o You are attention seeking -o She is Nadine Dorries0 -
I've also received letters for the last few years from Legal & General which imply that it might be better to opt back in.
However, being somewhat cynical by nature, I think I would prefer to trust a commercial outfit (ie L&G) rather than any ans all governments over the next few years.
Accepting that the decision is influenced by a number of factors, this number can't be infinite so I would have thought by now that someone would have compiled a checklist or matrix that would indicate your best move based on age, income, perhaps the FTSE 100 index and other variables.
Maybe it is too difficult - who knows??
ps. Real programmers don't document - if you can't understand it you shouldn't be reading it. (Bit like Serps really)0 -
new_girl wrote:His insurance company legal and general keep writing and saying he maybe better of if he contracts back into serps but as we will have very little income other than state pension would he be better off staying contracted out as if he took his private pension in a lump sum we might than qualify for some state benfits
He could only take the pension as a lump sum if it is worth less than 15k under the new trivial commutation rules. But if that is a possibility, it might well be worth contracting back in.Trying to keep it simple...0 -
Accepting that the decision is influenced by a number of factors, this number can't be infinite so I would have thought by now that someone would have compiled a checklist or matrix that would indicate your best move based on age, income, perhaps the FTSE 100 index and other variables.
Maybe it is too difficult - who knows??
There are too many variables as 1) performance is unknown. 2) Income can fluctuate 3) rebate can change
The issue was that up until 1996, everyone who had contracted out was financially better off (confirmed by the SIB at that point). Labour get into power and cut the rebates and we have a stockmarket crash and it swings the other way. Stockmarket crash is short term so that isnt as much of a concern but you need the right level of rebate.
On average its around 3-4% above inflation and charges that is required for someone upto age 35 to beat contracting in. Medium/high investment spread has the potential to beat that over the long term but low risk doesnt (doesnt mean it will or wont but its unlikely).I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
DazednConfused, you need to factor in the risk to the business. The risk of mis-selling complaints against them is sufficient that there is a reward for them in suggesting contracting in to reduce their exposure to that risk.
Real programmers document what they intended, because they aren't afraid of others finding their mistakes. Politicians just rely on people forgetting what they originally wrote about their intentions.
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So I guess it's back to the coin flip with 20 20 hindsight determining if it was the correct decision. In the words of Derek & Clive that's no way to run a ballroom. I'd still put marginally more trust in a commercial organisation than in unspecified governments over the coming years (maybe)...0
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Well, here are some thoughts, with no warranty of any sort about accuracy.
Income:- Consistent low income means contracting in is more likely to be good.
- Lots of low or no income (ex-pat, say) then high income means the averaging will decrease the benefit of the high income years, suggesting that there may be benefit from contracting out.
- Low risk investing means contracting in is more likely to be good.
- High risk investing makes contracting out more likely to be good.
- You might view the additional state pension as a low risk part of a mixture of private and state provision.
- If you aren't interested in money and investments, or are uncomfortable with them, you may prefer to be contracted in so you can forget about those things.
- If you're close to retirement it's more likely to be beneficial to be contracted in.
- If you don't trust the future governments, you might prefer contracting out.
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