Opt out of SERPS/S2P?

dmwg40

Hi guys

I have read a few of the things on this forum and still a little unsure. whether to opt back in or stay out?

I opted out when the option became available. I started my pension when i was 18 and am 37 in a few month.This is with Allied Dunbar(now Zurich)
I not exactly sure at what point i opted out but it was either late 89 or 90's might even be when i started my pension.
I had a letter last year asking if i wanted to opt back in, but i was away at the time and didn't get around to looking into.
Called Zurich I opted out in 1991, I have personal pension that is split between 4 funds

This is my main pension,

Had 1 year of a Company pension as well.which was managed by the Prudential, would i be better to transfer to my zurich pension as another matter?

jamesd

You're young enough that it's not likely to be harmful to be contracted out and you do gain the flexibility to take the pension sooner if you're contracted out.

Rather than transferring the Prudential pension to Allied Dunbar it's probably worth considering transferring both of them to another pension. AD aren't renowned for competitive pricing and your pension plan seems to be a pretty old one, likely on uncompetitive terms with a poor range of investments.

Worth reviewing the investments because just four funds doesn't seem like a great job was done, unless the pension had a very limited selection.

dunstonh

Rather than transferring the Prudential pension to Allied Dunbar it's probably worth considering transferring both of them to another pension. AD aren't renowned for competitive pricing and your pension plan seems to be a pretty old one, likely on uncompetitive terms with a poor range of investments.

I dont think you can transfer into an AD plan nowadays as AD no longer exists and those pensions are almost certainly closed for new business.

Chances are both the AD and Pru pensions can be bettered by modern alternatives.

wizard5353

EdInvestor wrote: »

There is absoluetly no reason to think the state pension will go.All parties are committed to increasing it, not dropping it.

Well that's no different to my point. You can't guarantee there will be a state pension in the future and I can't guarantee there will not! But I can guarantee if it goes you will lose what's been paid in now.

No further rises are planned beyond those already announced which cover decades...

I based that on the fact there is rumours to increase the age to 70 and the fact historically, the SPA for men and women has been 65 and 60, respectively. Between 2010 and 2020, the SPA for women will increase to 65. Between 2024 and 2026, 2034 and 2036 and 2044 and 2046, the SPA for both men and women will rise to 66, 67 and 68, respectively. Again you can't guarantee it will not go up. But as it has already increased statistically; the laws of averages and the laws of probabilities state it will go up! Look below regarding life expectancy, if life expectancy goes up then the pension age also has to increase or it will collapse the system.

Possibly so but this doesn;t apply to the vast majority who are living longer and longer - 100 years won't look off to the next generation. if you live a long time a guaranteed index linked state pension looks a good thing to have.

Yes so people who know they are unlikely to live to pension age should have the option to opt out which they do now. Your ability to spin stats is no match for scientific fact, DNA, genetics and biology, family genetic defects are inherited. What people fail to take in to account when working out life expectancy is cell degeneration. Basically, even though people live longer the body is still aging at the same rate it was 20, 30, 40, 100, 500 years ago. So there is a limit to what age people can naturally reach before the body fails. It's a long and vast subject to get in to and is off topic here but the point is the average age at death is not and nor is it likely to be 100 in the next 60 years without vast technological advances in medicine such as nanotechnology, cloning, etc. which are right now science fiction and not science fact. Another point to make is if you die your dependents and partner get nothing from your state pension unlike a private pension.

Rubbish. State pensions are paid overseas in the normal way.It is true that in some countries they are not uprated for inflation.

My bad, yes you can get it paid abroad but there are certain considerations to take in to account depending on which country you move to.

Opting in or out of S2P is a function of age and pay: young people with a higher salaries should on the whole opt out, as they won't lose financially and will gain flexibility.Older people with lower salaries will do better to opt in as they will definitely lose if they opt out.

There is no point arguing the point as to who is right or wrong on if opting out is right for younger people but yes if your close to pension age now then staying in would be the better thing to do as at least you know you can get it.
I'm quite angry that in 2012 is likely that I will be forced back in to paying toward the state pension as I'm never going to get it. That's in my mind stealing, call it what you like and spin what you want. It's not going to change my views on that matter.

dmwg40

jamesd wrote: »

You're young enough that it's not likely to be harmful to be contracted out and you do gain the flexibility to take the pension sooner if you're contracted out.

Rather than transferring the Prudential pension to Allied Dunbar it's probably worth considering transferring both of them to another pension. AD aren't renowned for competitive pricing and your pension plan seems to be a pretty old one, likely on uncompetitive terms with a poor range of investments.

Worth reviewing the investments because just four funds doesn't seem like a great job was done, unless the pension had a very limited selection.

Ok so where do i start with looking for a better pension then ? any suggestions advice there.

plus with the AD pension theres a 4k loss in transfer value. over normal value

salty_seadog

Morning all,
I have been contracted out since 1992 and have only just begun to get my head around what i have done. My statement which i got in january this year says that it will provide a taxable yearly pension of £3930 in todays prices. This seems a lot to me as that is almost on a par with the basic state pension figures for the present day.
Here is a link(http://cid-2bdcab4e5e80446e.skydrive.live.com/browse.aspx/s2p?uc=4) to a scanned copy of my statement, would one or two of the more savvy heads take a look and tell me if i have missed something as the figures look to be quite a lot higher than i was expecting.
cheers guys, I will of course be speaking to FP but wanted some preliminary opinions.....have i really built up nearly £4000 pa already?

cheers Ssd

edit to say, I am currently 34 years old
I am a seafarer and as such am able to claim back all my tax paid each year if this has any bearing on anything

jamesd

salty seadog, you have not built up a pension worth nearly 4,000 pa already.

The plan is projected to give a pension of 3930 in today's money if you continue to contribute at current rates (increasing with inflation) from now to 2039 and if the investments inside it grow at 7%.

The current value is 8891 lump sum. That is, today it's worth that much, and that's what you'd get if you transferred it to another plan. That would give a pension of about 530 a year at 6% annuity rate.

All of the money is in the Friends Provident with profits fund and those are largely discredited these days for new investments. It appears that your money has been growing at paltry rates of 2.75%, 2.50%, 2.25% and 2.0% over the last four years and that is well below the 7% assumed in the projection. So it is very unlikely that you will achieve the pension level given by the projection. It isn't even growing by as much as inflation, so only the regular contributions of new money are stopping your value from falling each year.

You will not hit the pension target or anything remotely close to it with this plan. Think in terms of maybe getting as little as 1,000 a year from it.

The achieved growth rates are horribly low for an investment and not close to adequate to provide a good retirement provision compared to what you could get with decent returns in the 10%+ range (the main UK stock market index has returned a long term average of 12% a year before fees, 10% after).

It may be possible to improve performance by changing the investments within this pension but probably not enough of an improvement is going to be available.

I see that it's a contracted out plan and there have been no signs of other contributions. Those rebates are expected to end around 2012 and you will then be contracted in to the state second pension (S2P, formerly SERPS) automatically. The money already paid into this plan won't be affected but no more rebates will be added to it. Instead you will start building up an entitlement to state secondary pension.

Get yourself a decent pension for new money, at least, and it'll probably be best to transfer the money out of this one as well. This one no longer qualifies as decent even if it did at one time. Time to discuss with an IFA because your current plan is not close to being adequate.

You should also decide how much you want your retirement income to be and discuss with the IFA how much of your own money you should be contributing to be fairly sure of achieving that target income.

The little good news I have to write is that you have ample time to change things and build up a good or excellent pension if that planned retirement date is correct.

salty_seadog

cheers jamesd,
i thought it all looked a bit to good to be true. However if your educated guess is that the fund will provide a pension of about £1000 pa is it not overegging it a little to have a projected value of £3930. I have only spent a few days looking into my pension position but the two figures (your estimate ) and the Friends Provident projection seem rather difficult to reconcile, I guess your guess is the bottom end of the possibility spectrum and theirs is looking on the extremely sunny side.

jamesd

It's overregging it a lot. That 7% is simply an invented number to use in projections. It's not in any way related to how your own pension is performing.

1,000 was optimistic, not pessimistic.

In any case, neither is actually going to happen because the contracting out money is going to stop and when that happens the pension value will fall, because the growth rate is below inflation.

This sort of thing was fine when you signed up for it, given the choices available then, the level of the government rebates and the performance of the funds in those days. Not any more.

There are plenty of decent options around. Typically the least you'd go for today would offer a choice of a few hundred funds, some not run by the pension company itself (usually the better ones...) - Scottish Widows offers a decent pension of this type, Friends Provident also offers one. Other personal pensions offer up thousand plus funds from a much larger slice of the market and are a good idea. You'll also read of SIPPs. Those can hold funds and other things, generally a bit more costly than holding the comparable funds via a pension. They offer a broader range of options, not restricted to just funds. Hargreaves Lansdown offers a popular one of these.

At the moment the pure SIPP type can't be used to hold the protected rights (from contracting out rebates) money that's in your pension but that's expected to change in the autumn. There are some hybrid SIPPs that mix pure SIPP and pension that can hold it. Or you could just delay a switch until that change happens.

Stevenic

wizard5353 wrote: »

I'm quite angry that in 2012 is likely that I will be forced back in to paying toward the state pension as I'm never going to get it.

That pretty much sums up how I feel on S2P, why the hell should I be forced to pay into something that I'll never see the benefit of, especially as under the current system I might be able to see some of it because the money could be got at 55 and not 67?

I wish that NI contributions were scrapped and it was just included as Income Tax. I'm amazed by how many people think that it is 'Insurance' and that the Government have some pot of money with their name on it. If this was being done by a company they would fall foul of the Trade Description Act.