Opt out of SERPS/S2P?

dunstonh

I apologie most sincerely if I have posted on the wrong thread - it was not my intention.

Dont worry. The differences in contracting out with an occ scheme and a personal scheme are confusing.

The DB Pension appears to be getting expensive (from paying nothing to now having to pay 10%) and with no guarantee that they will not come back for more!

You may be paying 10% (gross) but it is still worth far more than that. If you were to put a rough cost on the benefits, then you are looking at 18-20% of which you are paying 10% gross.

If I still want to take the pension at 60 (and I do), then the post 1 Jun 08 part of it will be reduced (the pre 1 Jun 08 part of the pension is guaranteed). I only have 5 years until I reach 60 and because the pension will be reduced, the actually increase over that 5 years does not warrant paying the 10% from my salary.

How much is it reduced by? It may be that the reduction is not as much as the benefits you will still receive.

I believe that I would be better of saving the 10% in an ISA and opting back into S2P.

If you leave the scheme you will be automatically opted back in. However, you need to look at the cost of the pension and the ISA. The pension contribution is deducted from your pay before tax is. So, a 10% contribution for a higher rate taxpayer is really a 6% contribution net. You need to see if a 6% contribution into the ISA beats the benefits of the 10% you are paying into the pension.

thepearce

I'm 32 and have 3 employer pensions (all opted in) and a total pot so far (since Nov' 99) of £25k. I've been reading up on pensions lately as I'll be forced to leave my current employer's pension.

Next year I should be working in Australia and won't be paying into a pension (I'll pay "superannuation" but have this refunded when I leave). I'll probably increase pension payments through the following year (2009) rather than add this amount as a one-off.

I've read a bit on S2P and contracting out and I understand it perhaps wasn't as good for some people as they hoped it would be. I've read what I can but could contracting out a particularly bad idea for me?

I haven't really thought about retirement age but I think it's be earlier, rather than later.

jamesd

Hassle factor may be the significant issue for you if contracting out ends in 2012. But that's after an election so it may not happen at all.

Opting out now will affect your contracted out payment from next tax year, when you'll be in Australia and paying nothing anyway. So the main reason to contract out now is to be prepared for when you return, so that you're sure to do it before 5 April 2009 and are opted out for the 2009/10 tax year. If you trust yourself to do that you can ignore contracting out now and wait until early 2009, before April, to do it.

The benefit of contracting out had depended on stock market and investment performance and the contracting out rebate size. It's been less good recently because of the market decline a few years ago and reduced rebates. With improved markets it's now more likely to be beneficial and the payments have been increased also for those under 52.

So, if you want to be able to take your S2P pension before you're 68 (or so, didn't bother to check just what year applies to someone of your age) it's a useful idea to contract out. Just a case of when.

thepearce

Thanks jamesd. I'll be 67 when I reach pensionable age as it currently stands. Also - the way i read it was if I opted out before the end of the current tax year it would impact this tax year.

smoggie9

I'm new to this forum and was looking at the Serps/sp2 page. I was advised to opt out at 16 (although I hadn't a clue what I had opted out of!) and began working for the NHS at 24. Being 24 I was a little wiser and have been in the NHS pension scheme since. I am still contracted out as far as SERPS/sp2 is concerned.
My thoughts on this were to stay opted out as I will have my NHS pension and may not get the extra governement pension if opted back in, but opted out I will still get somthing.
Am I completely wrong with this assumption?

EdInvestor

smoggie9 wrote: »

I'm new to this forum and was looking at the Serps/sp2 page. I was advised to opt out at 16 (although I hadn't a clue what I had opted out of!) and began working for the NHS at 24.

Where did your opetd out rebates go initially?Do you have an old small pension hanging about from those days?

Being 24 I was a little wiser and have been in the NHS pension scheme since. I am still contracted out as far as SERPS/sp2 is concerned.My thoughts on this were to stay opted out

The Serps/S2P amount will be included in your NHS pension, which requires you to be contracted out, you don't have a choice.This is normal with final salary company pensions.

smoggie9

Thanks EdInvestor. I have a policy with Royal London (although the original company was sold out a number of times) and I still get yearly letters. Does this mean that I still have 2 pensions (1x RL and 1x NHS)?

EdInvestor

smoggie9 wrote: »

Thanks EdInvestor. I have a policy with Royal London (although the original company was sold out a number of times) and I still get yearly letters. Does this mean that I still have 2 pensions (1x RL and 1x NHS)?

Looks like it.You should review this RL pension, it may need to be moved.Write to them and ask for some details:

Current value
Transfer value
Fund(s) it is invested in
Alternative fund options
Annual charges.

Then post the info here and we can see what's best to do with it.

dunstonh

I was advised to opt out at 16 (although I hadn't a clue what I had opted out of!)

You couldnt opt out until you were 18 (you could sign the forms when you were 17 so you contracted out in the year you were 18).

I am still contracted out as far as SERPS/sp2 is concerned.

only on paper as the personal pension is concerned. The NHS scheme takes priority over the personal pension and you are contracted out with the works scheme.

Ed is correct in telling you to get the RL pension reviewed. They are closed for new business and their legacy pension contracts are not great by todays standards. A review of the policy against modern alternatives should take place to see if its worth transferring the pension or not.

smoggie9

Where do I move/transfer this pension to?
I will get the information required.
I have not looked into this seriously enough. I guess this is a mine field.
I did enquire about moving/merging with my NHS pension, but after speaking to someone who was supposed to be the trust pension adviser I was told I couldnt move this after being in the pension scheme more than 2 years.
I didnt know that no money was being put into the Serps/SP2.

Thanks for the replies.