SERPS IN OR OUT 19 November 2004 at 4:00PM edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning 3 replies 1.1K views

FUDGEE

JUST GOT A LETTER FROM STANDARD LIFE, AND A LOAD OF JUNK WITH IT , BUT STILL NO WISER SO WHATS BEST IN OR OUT. :-/

dunstonh

You are none the wiser as there is no clear guidence being issued from the Govt on the future of S2P. In return, the insurance companise arent issuing clear guidence.

At this moment in time, it appears that the majority of people should be contracted in. The exception is if you invest in high risk funds where you think there is a high potential for returns. (in other words unlikely for most people).

However, the proposals are now likely that from 2006, you will be able to take a tax free lump sum from contracted out funds whereas you cannot when you contract in.

So. Looking at the situation now, if you contract out, you will have likely less income in retirment but get 25% of the fund value as a tax free cash lump sum. If you contract in, your income in retirement will be a little higher but you will not get a tax free cash lump sum.

Take your pick.

isasmurf

You are none the wiser as there is no clear guidence being issued from the Govt on the future of S2P.  In return, the insurance companise arent issuing clear guidence.

The Pensions Act 2004 (which it now is) removes "the minimum age from which protected rights can be paid enabling them to be paid at the same time as all other rights. This will ease schemes administrative burden in handling these rights and intends to represent a significant simplification of the contracting out regime."
(Quote from DWP press release on Pensions Bill receiving Royal Assent)

Is this what you were refering to DD?

Milarky

There are two aspects  - the harmonisation of age limits when you can take contracted out benefits [i.e. was after age 60, will be from age 55 to 75 in line with other pension ages - thus 5 years more flexibility]

But also it was aired on Moneybox [see 'Changes affecting contracting-out' thread] recently that after 2006 the terms for coverting a SERPS/S2P - 'protected rights' - pension will for the first time include the 25% lump sum only available on the non protected-rights at present.

Although helpful to anyone contracted out these are fairly marginal to the larger consideration - which is that by contracting out you give up a 'certain' amount of future income for a 'certain' lump of money.

[For instance,  access to the lump sum of 25% would 'boost' potential income by about 10% I worked out - nothing to get excited about!]