Opt out of SERPS/S2P?

jamesd

This Scottish Widows article has a nice illustration of the way contracting out rebates increased for those under 52 and decreased, often substantially, for those over 52, between 2006/7 and 2007/8 due to the five year review.

Liz_the_Whizz

Interesting article on Citywire today, in which Legal & General advise that the magic age at which it no longer pays to opt out of S2P is 44 for both men and women.

http://www.citywire.co.uk/News/NewsArticle.aspx?VersionID=98627

dunstonh

Liz_the_Whizz wrote: »

Interesting article on Citywire today, in which Legal & General advise that the magic age at which it no longer pays to opt out of S2P is 44 for both men and women.

http://www.citywire.co.uk/News/NewsArticle.aspx?VersionID=98627

Whilst that is probably a bit too simplistic in itself, the reason is that the rebates cease to increase after age 43. In previous years the rebates increased upto age 55 (age 55 was 10.5% last year but is 7.4% this year). However, the rebates at younger ages are higher next year which actually improves the prospects of contracting out if you are aged 43 or under (e.g. last year age 25 rebate was 4.6%. next year is 5.5%).

Its only a small difference but for active investors, it is good news.

It was about 2-3 months ago on this website that we said that 43 was the final age to contract out under the new rebate levels. Nice to see the media catch up to this website.

http://forums.moneysavingexpert.com/showpost.html?p=6183209&postcount=2 - 3rd Sept as it happens

helliecopter_2

I'm confused with the whole serps situation.

I'm 30, a full time mum, not worked for 3 years and don't plan to go back to work for another 2-3years. I have a tiny pension which I joined through my company and haven't paid anything in, since 2003 when I left my employer. I have no income and can't add anything to my fund for the mo. I was advised to opt out, so my serps is added to this pension. The fund is currently worth whopping £5200! I'm just a little worried - have i made the right decision to opt out?

I'd appreciate any advice before I go to see an IFA just for some other opinions and thoughts.

jamesd

Your age puts you in the region where being opted out is quite likely to be good, particularly if you're interested in the possibility of retiring before state retirement age, perhaps so you can retire at the same age as an older partner instead of waiting. You don't get things like the option to take this pension money at age 55 if you're opted in (but you'd still have to wait for the basic state pension).

The next consideration would be risk tolerance for investing. The more ups and downs you're willing to accept in the value of the pension pot, the greater the benefit potential of opting out. On the other hand, if all of the pension is in a UK-only balanced managed fund and you're not going to change that to something more adventurous with a prospect of higher investment returns, that decreases the attractiveness of opting out.

So, where is your opted out pension money? Which company, which investments in that company's plan?

dunstonh

I'm 30, a full time mum, not worked for 3 years and don't plan to go back to work for another 2-3years. I have a tiny pension which I joined through my company and haven't paid anything in, since 2003 when I left my employer. I have no income and can't add anything to my fund for the mo. I was advised to opt out, so my serps is added to this pension. The fund is currently worth whopping £5200! I'm just a little worried - have i made the right decision to opt out?

On paper you are contracted out but as you arent earning it makes no difference as its based on the national insurance you pay when you earn.

I wouldnt worry about it until you go back to work.

helliecopter_2

Thanks for your reply Jamesd. I played it safe when setting it up and its was a 95 - 5% split. The below fingures where taken from my 2007 statement.

'Series 1' CGU Managed - Non Protected value £3065.50 / Protected £1925.29
'Series 1' American - Non Protected value £1925.29 / Protected £81.47

We're only talking pence really, but I'd like to get the best from them for my future. My hubby is 5 years older and I would like to retire at the same time as him although not sure when this will be. My hubby is a member of the forces and is pensionable in 4 years if he wants it, but plans to stay in until 2020 (age 48). If he gets one more rank he will have the option to sign-on until 55. Plan at the mo is for him to stay in and leave in 2020. When I was single I paid all additional money into my house and had the opinion that I'd rather reduce my mortgage then have a large pension pot. Rightly or wrongly it's put us in a great postition with our house and we currently have a 50% mortgage which will be paid off in 2020. Sorry to waffle, but thought a bit of background might help.

Really appreciate any advice.

jamesd

The balanced managed fund isn't really an encouraging one for getting better returns. Not bad, but a greater non-US international selection would be nice and your current pension contract doesn't seem to offer the really good (non-NU) ones that are around. Assuming they are NU and you're willing to increase the annual ups and downs to get higher returns you might ask NU what options you have to change to a pension with a greater range of fund choices. Not urgent but it is likely to help long-term. Their more modern pensions do have a greater selection available.

Your retirement plans do suggest that being contracted out will be useful to you, just so you can start taking the income when you're 55 instead of having to wait until you're 65, as you'd have to with money from the contracted in alternative.

propertyhelpturkey

I opted out in 1989 ,ia m 44 of years of age now.

I plan to retire to Turkey at 51

Obviously i cant draw on my fund until i am 55

I currently have £30,000 in my fund with Abbey Life

They give me projected final salary at 65 but obviously im more interested in the figure when im 51.

Is anyone wise enough to tell me what im likely to get if growth is say 5% and what figure this is likely to give me a pension at 55

Also if i retire at 51 will it just freeze until i claim it at 55 or will it still grow for the 4 years.

Thanks in advance.

dunstonh

They give me projected final salary at 65 but obviously im more interested in the figure when im 51.

You cannot take it at 51. 55 will be the earliest.

Also if i retire at 51 will it just freeze until i claim it at 55 or will it still grow for the 4 years.

It will be subject to investment returns until you take it.

Ask Abbey Life to send you a projection to age 55.