Opt out of SERPS/S2P?

jamesd

karenf, give Prudential a call and they will tell you whether they have been receiving payments and if you're currently contracted in or out.

It'll also be a good time to ask them how your money is invested and what alternative investment options you have.

Stevenic

My company are in the process of changing our pension provider, from one contracted scheme to another, however I would like to now opt out of S2P. I've been in SERPS/S2P since 1994 but have a very small private pension which I would like to boost with the NI rebate. Am I forced to remain contracted in or can I even opt out so the rebate goes to a private pension while I remain in the company scheme?

jamesd

If the company pension scheme is contracted out you have not been in S2P while you have been in the company schemes and cannot contract out while you are in them.

chrishunt

I'm 40 and have:

• 1 company final salary pension due to pay out around £5500 (in todays money) at 65

• 1 paid up private pension with "Tomorrow" with a current value of about £23K split across managed/uk equity/invesco high income

• 1 paid up private pension with Zurich with a current value of around £15K excl prot rights and £30K prot rights all split across far east/managed/propert/gilt edged

• 1 GPP with a current value around £28K split across europe/far east/property/uk fixed interest/us equity tracker

I am still contracted out from a number of years ago with the NI rebates going into my Zurich fund. I am a higher rate tax payer.

I have been reading the document on the DWP website

http://www.thepensionservice.gov.uk/resourcecentre/pm/pm7.asp

and the message board here and am a little confused about what is being planned for the future.

• Will I remain able to contract out?
• Should I remain contracted out and if so how long for, it would seem the consensus here and the "recomendation" in the DWP document is that I should contract back in from 44?
• And lastly whilst i am still contracted out would it be better to use a different provider for the rebates?

I realise that there are no absolutes to any of these questions, but any suggestions/thoughts will be much appreciated.

many thanks,

Chris

dunstonh

rebates go up a bit next year and 45 is the pivotal age to contract back in as rebates will no longer increase after age 45.

As for providers, I always prefer a clean approach and having one provider unless there are signficant benefits to having multiple providers.

jamesd

You'll be able to stay contracted out until the end of contracting out, perhaps 2012 if it happens as planned. As the rebate levels stop increasing with age the investment return that you need to match the pension you'd get at 67 from having been contracted in increases. However, you gain the flexibility of the ability to take the pension before age 67, getting a lower pension when taking the money early. That flexibility may be of greater value to you than the possibly higher pension from being contracted in.

Whether the pension value is actually higher or lower will depend on how your investments perform. Each year after 45 the investment return needed to be as well off contracting out as contracting in increases but those increases are quite small in the forties, accelerating greatly as you get into the mid fifties and to impractical levels by the sixties.

If you know what your pension investment return has been so far that would give some idea of what your own personal break-even point is.

Stevenic

jamesd wrote: »

If the company pension scheme is contracted out you have not been in S2P while you have been in the company schemes and cannot contract out while you are in them.

The company scheme is contracted in but I want out so that I can add even more to my own private pension. Does this sound possible are am I forced to go with what my company have provided?

And I see you state that they may well remove the opt out of S2P in 2012, would this mean that contributing to the Secondary State Pension would be compulsory and that many personal schemes would suffer as you wouldn't be able to get at the money until your pensionable age?

jamesd

If the scheme leaves you contracted in then you can contract out and put that money into a private pension of your choice. If it contracts you out and receives the money then you can't.

You're correct about the effect of removing the contracting out option, except that for those in company schemes that contract them out it makes no difference since they are already stuck with whatever the company scheme does.

Removing the ability to contract out is necessary because the plan is to take more and more of the income-related part of S2P money from average and higher earners and use the money for pension contributions for lower earners. So all of the average and higher earners would contract out if they could.

EmptyPurse

Another very confused novice here!

I'm a 31-year old female. I have 5 1/2 years' worth of contributions in a final salary pension scheme with an old employer. My new employer offers a pension scheme with Scottish Equitable - if I pay 5%, my employer will put 10% into the scheme.

I met the IFA who manages our scheme today and he advised me to opt out of SERPS. He suggested this because I'm relatively young and there's no guarantee that the government-backed schemes will have any money left by the time I eventually retire. However, I'm very nervous about opting out. Apart from anything else I'm planning to take a career break (5-10 years) at some stage to have children. Opting out might be suitable for someone who has a long career ahead of them but my career is likely to be patchy (if I end up marrying my boyfriend, I'll be an Army wife moving every two years or so). Have I done the right thing in agreeing to the opt-out? Can I opt out now and then opt back in at a later date?

dunstonh

However, I'm very nervous about opting out.

Why?

from anything else I'm planning to take a career break (5-10 years) at some stage to have children.

Has no impact on the decision to contract out at all.

Opting out might be suitable for someone who has a long career ahead of them but my career is likely to be patchy

Your career path has nothing to do with it. Contracting out is an annual decision.

Have I done the right thing in agreeing to the opt-out?

You are within the age range but it depends on whether the benefits of contracting out appeal to you or not. The reasons you have given for not doing it are not valid so what other reasons would you not have?

Can I opt out now and then opt back in at a later date?

Yes.