Serps?

EdInvestor

It's certainly not clear cut.There are all sorts of rumours about what the Government plans to do with future SERPS/S2P payouts (eg remove earnings-linking) and the retirement age ( eg put it up, and up.....) which make the future value of the benefit very questionable.

If the rebates would come under your own control and you can invest it so as to make it sweat, then I would take it, as you will then have access to the pension at 55 with tax free cash ( unless they change the rules again of course.:( ) It's "free money", albeit, not that much.

However I believe there are some cases with company pensions where it's better to contract in because the company is just using the rebate as a kind of free subsidy to help reduce its own contributions to your company pension? Perhaps someone could confirm that.

Milarky

dunstonh wrote:

You shouldnt expect to make any more money contracting out. However, the ability to take it before state retirement age, whatever that ends up being and having 25% tax free lump sum available and giving you a lower tax liability and some increased death benefits can offset the small gains there may be by contracting in. If they are important to you that is.

One of the most important things about contracting out is where its invested and what charges you are paying. In a poor investment fund or in a plan with higher charges than modern plans then you could be losing thousands of pounds a year of retirement income.

Surely it is possible to quantify this question pretty precisely by working out the required return of a given rebate [which is age-related a bit anyway] and the number of years to the current SPA? I know that even if you get the exact of amount of growth you aim at the anniuty rate is going to be lower than it would be now, but would it not be possible to state what rate of growth the GAD itself assumes when valuing the rebates? They must have published such assumptions mustn't they? Knowing the 'break even' or 'target' return won't guarantee any particualr outcome, but it could be used as a tool in the 'contract out/contract in' decision, no?

EdInvestor wrote:

There are all sorts of rumours about what the Government plans to do with future SERPS/S2P payouts (eg remove earnings-linking)

That's a good point Ed. The value of the rebates is set by the GAD based on matching the earnings-linked indexation currently built into S2P-years income. Note that they don't earnings-link the basic state pension - the flat rate bit. As Turner pointed out at the launch of his commission's second report a couple of weeks ago, part of the reason for not indexing to earnings the in-payment state pension is the higher cost of putting this earnings-link on the SERPS/S2P element pre-SPA instead. It is not really logical to be indexing different elements of the state pension at different rates. They could do this, therefore, but that is as impossible to predict as any other change to the layout of the state pension.

isasmurf

Milarky wrote:

Surely it is possible to quantify this question pretty precisely by working out the required return of a given rebate [which is age-related a bit anyway] and the number of years to the current SPA? I know that even if you get the exact of amount of growth you aim at the anniuty rate is going to be lower than it would be now, but would it not be possible to state what rate of growth the GAD itself assumes when valuing the rebates? They must have published such assumptions mustn't they?

You ask, I find :snow_grin
Reports of the Secretary of State for Work and Pensions and the Government Actuary for the current quinqeunnium.

The consultation on assumptions for the next quinquiennium (2007-2012) closes on Monday. These must be laid before parliament by April 2006.

viktory

So how do you opt back into Serps (or whatever it is called now)?

:xmassign: :xmastree:

isasmurf

You contact your pension provider, who will send you the appropriate form.

Tils

If your not sure if to opt in or out....best course of action is to stay in ...right?

btw I currently pay nothing into a pension and I did a few years ago..so Im assuming i should opt in?


Thanks for any tips.

dunstonh

If your not sure if to opt in or out....best course of action is to stay in ...right?

No.

Some people are better off contracting out, some are better contracting in. Not knowing does not change whether its best or not. It just means you don't know whether its best or not.

btw I currently pay nothing into a pension and I did a few years ago..so Im assuming i should opt in?

Nope. Never assume anything. You do not need to contribute to a pension to be contracted out.