serps pension neeed help

kent_money_saver · 3 September 2007 at 10:03AM

Hi all,
im new here, so if this post is in the wrong place i apologize in advance!!
Im 41 , work for a large company with a contributory pension whereby whatever i pay in contributions they match up to 6% of my salary.
i contracted out of serps when i was 16 and have been with the l+g ever since ,my salary is 35k at the mo , but no doubt it will reduce to 25k when the eec working time directive starts to bite.
i have a house valued at 300k and a mortgage of 113k, 3 kids under 18.
my question is ???... have i done the right thing contracting out of serps and putting the funds with legal and general, or is there a better way?
advice is greatly received, regards Kent:cool:

dunstonh · 3 September 2007 at 10:16AM

my question is ???... have i done the right thing contracting out of serps and putting the funds with legal and general, or is there a better way?

We dont know how you have it invested so we cannot comment on whether you have done the right thing with L&G. L&G have some perfectly competent funds and you can build a basic fund spread with them.

As for whether contracting out was right for you or not will depend on the pros and cons and how you view them.

The main benefits of contracting out are:
1 - you can take 25% of the contracted out funds as a tax free lump sum (cant with contracted in)
2 - you can take the income at any age between 55-75 (cant with contracted in. It matches your state pension).
3 - you can do income drawdown with contracted out funds (cant with contracted in).
4 - death benefits can be better with contracted out.
5 - money is in your pension and not in Govt hands. Govt has reduced contracted in benefits 3 times but in each case has never asked for the money back from contracted out funds.

The main disadvantage is investment risk. At this time around one half are financially better off by contracting out and the other half worse off. In 1996, everyone who had contracted out was better off. In 2002 nearly everyone was worse off (stockmarket crash).

There is no nil risk option. You are making a decision between investment risk and legislative risk.

You have to make a judgement call and only time will tell. There is no clear cut decision to make. One thing that is important is to make sure your money is invested well. You need about 2-3% above inflation to break even (rough guide). If you are in a poor quality fund then you need to review that.

As for age, about 45 is when you should be looking to contract in. The rebates from this year stop increasing after age 43. So, around 45 onwards is the point where it gets harder for the investment side to match the contracted in benefits.

kent_money_saver · 3 September 2007 at 10:53AM

HI dustonh,
thanks for the help,am i right in saying that i can contract back in and have two pensions when i retire?,1 from the l+g(serps contracted out 16-45yrs) and if i contract back in at 45 yrs another pension from the government? and did i read that there is a s2p pension as well, or does this supercede the first pension?awfully confusing this, but i think ive woken up and smelt the coffee in time.
i couldnt tell you what l+g have done with my cash from serps , i guess i need to know, how do i find out?
Ive been a fan of Martin for some time, ive cut all the easy bills, now i thought i would tackle the tricky stuff!!
all help gratefully recieved, thanks again dunston h

kent_money_saver · 3 September 2007 at 10:55AM

Sorry forgot to say, would i have 3 pensions? 1 from serps,1 from work, 1 from contracting in?
thanks Kent

dunstonh · 3 September 2007 at 11:09AM

SERPS was replaced with S2P. It is often referred to as the same thing purely for convenience. Many years ago there was the graduated pension as well.

i couldnt tell you what l+g have done with my cash from serps , i guess i need to know, how do i find out?

Yes you do. Where and how it is invested is the single most important thing. At your age, just 3% a year difference in the return could double the final fund value. I bet if you had the pension value in your hand as cash, you would be taking more interest in how you invest it. With pensions, people seem to ignore the investing bit. Yet I cannot tell you how vital that bit is.

am i right in saying that i can contract back in and have two pensions when i retire?,1 from the l+g(serps contracted out 16-45yrs) and if i contract back in at 45 yrs another pension from the government?

You will get your personal pension (from your personal contributions. Known as non-protected rights or ordinary rights). You will get your contracted out pension (known as protected rights) and you will get your S2P based on your NI contributions from age 45/46 onwards and you will get your basic state pension (subject to NI contributions).

The Govt has toyed with the idea of abolishing SERPS/S2P and replacing the basic state pension with a single state pension. That still has lots of supporters and may still happen. If that does, you contracted in benefits would be wiped out. However, contracted out benefits would likely to be retained. This is based on the fact that the Govt never clawed back contracted out benefits the 3 previous times they reduced Serps, it would require primary legislation and it would create an absolutely massive stockmarket crash due to the billions that are invested. Therefore doing far more damage than writing it off.

Many of us believe that when planning, you shouldnt include the Serps/S2P side from contracting in when you look at the figures. They may or may not be there when you retire. If you get it then great. If not, you havent planned for it.

EdInvestor · 3 September 2007 at 12:20PM

kent_money_saver wrote: »

am i right in saying that i can contract back in and have two pensions when i retire?,1 from the l+g(serps contracted out 16-45yrs) and if i contract back in at 45 yrs another pension from the government? and did i read that there is a s2p pension as well, or does this supercede the first pension?

SERPS and S2P are the same thing more or less. If you contracted back in at 45, you would then get
1.Your company pension
2.Your contracted out pension from L@G
3.Your state pension enhanced by "additional state pension - yet another name for SERPS/S2P (!)

i couldnt tell you what l+g have done with my cash from serps , i guess i need to know, how do i find out?

Don't they send you an annual statement? If not write to them and ask for the following info:

Current value of pension
Transfer value of pension
Fund(s) it is invested in
Annual charges levied
Are there any guarantees attached?

kent_money_saver · 3 September 2007 at 3:59PM

woo hoo, on a roll here, ill get the details you say and once i get those , maybe we can roll further down the road.
i must say im really rather enjoying this!!!
i,m looking forward to getting some answers out of L+G though.
Many thanks lads and ladies, most aprreciated.:T

MoneyMac · 3 September 2007 at 8:02PM

Sorry to jump in on this but haven't posted before. I am contracted out of serps for the last 17 years, had 10 years out of work bringing up children but went back to work part time 7 years ago. Have been in works pension for nearly 2 years. My dilemma(especially reading earlier about contracting back in after 43) is what to do. Windsor Life is where my contributions are going I have yearly statements but have absolutely no idea about good or poor investments. I know in 2002 they made a initial premium of £1659.00 in a fund with a component name PENSION AUGMENTATION SINGLE as they said that after an investigation they found that i suffered a loss for a number of reasons listed in their letter, so i get one statement with a policy number for this and one statement for the original policy. When i was advised to contract out i must admit i didn't really understand what it was all about. I am starting to get a bit worried after reading all of the info as i am totally confused and would appreciate any feedback.

Many thanks

serps pension neeed help

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