Opt out of SERPS/S2P?

jamesd

At 51 he's well above the age where it's usually best to contract back in. It's probably best for him to do that. The reason is that the contracted out contributions from the government stop increasing with age now in the 40s, while it was later in the past, so now he's not getting the extra money it'll take to match the contracted in benefit. For those who contract in, that benefit does continue increasing with age.

The reason not to contract in might be if he's planning to retire well before state pension age. The contracted out pension money can be taken from age 55 (50 for a couple more years) and that can help to bridge the gap until the state pensions start. It's also possible to take a 25% tax free lump sum from the contracted out money but not from contracted in money.

In any case, the plan is to eliminate contracting out in 2012, so if he stays contracted out, it'll change then, unless the plans change. That will be during the term of a new government so it isn't guaranteed that it will happen.

The existing contributions from the past years of contracting out will stay out and the most important factor for how much pension they generate is managing the investments being used for this pot of money. Vital and if he's not capable and you're not capable, you should seek guidance from an IFA to get it looked after.

Easy decision: if he's not planning to retire before state retirement age, contract back in. Any other case requires a bit more thought.

You should also both get state pension forecasts so you know what to expect from the state pensions. If you aren't working it's worth knowing that you can get 20% tax relief on pension contributions anyway on up to 3600 of gross contributions a year. Since you also get your own independent tax personal allowance now and when retired, that means you can get the tax relief but not pay tax on the income. It's one of the best deals going and if you aren't already going to get £10,000 or so of income from pensions, including the state pensions, it's an option you two should seriously consider taking every year.

If you have missed any years in your national insurance contributions and won't have 30 by the time you retire, the state pension forecast will tell you that. Buying more during this tax year is an even better deal, since the price will go up by 50% next tax year.

jonnyLowes

Hi, I contracted out of SERPS about 10 years ago. I was wondering if anyone knows how I would go about contracting back in to SERPS? I've tried my old private pension company - to no avail. Thanks.

dunstonh

jonnyLowes wrote: »

Hi, I contracted out of SERPS about 10 years ago. I was wondering if anyone knows how I would go about contracting back in to SERPS? I've tried my old private pension company - to no avail. Thanks.

You tell your pension company you want to contract in and they will supply the forms. That assumes that the pension is not already contracted in or its a type that cannot be contracted in.

marklv

I'm 42 and just started a job which has a final salary pension, but is forcibly contracted out. I was contracted in for most of my previous working life. If I stay in this job and pension scheme until I retire, will I still be able to get some second state pension money (based on my previous contracted in time) or not? Thanks.

EdInvestor

marklv wrote: »

If I stay in this job and pension scheme until I retire, will I still be able to get some second state pension money (based on my previous contracted in time) or not? Thanks.

Yes.Get a state pension forecast, that will show the amount of additional state pension you have accrued.

https://www.thepensionservice.gov.uk

jamesd

marklv wrote: »

If I stay in this job and pension scheme until I retire, will I still be able to get some second state pension money (based on my previous contracted in time) or not?

Yes you'll get some based on past contracted in time and any contracted in time that you might have at future jobs. The state pension forecast will tell you how much.

This new scheme is required to provide benefits at least as good as those from being contracted in.

kindofagilr

Also any contracted out pension you have is only taken away from any Pre 1997 Additional Pension, if you have Additional Pension fron 1997 onwards then it doesnt affect the amount of Additional Pension you have

veepod

Is it SERPS that is dependant on your contributions? If so there is no way I am in a position to make up the contributions I have missed both as a low income self employed, and as a mother. In which case there is no point in opting back in for me.

jamesd

Yes, it's SERPS, now renamed to S2P, that is affected by these contributions.

Nobody can make additional payments for past years to increase S2P payouts anyway, that only applies to the payments you can make to increase the number of qualifying years for the basic state pension and how many thirtieths of that you get. If you've been receiving child benefit you'll probably get the maximum possible basic state pension anyway because there's a system of credits linked to that.

You're wrong to conclude that there's no point in contracting back in if you're working. Each bit of contribution that you pay out of salary increases the amount of S2P that you build up and those on lower incomes benefit much more from being contracted in than those on higher incomes, because the payment amounts are loaded in favour of the first part of income. Generally those on low incomes shouldn't consider contracting out, but should stay contracted in.

You should really get a state pension forecast to see what your current position is and what the current record shows you can expect to get. Then you can call the helpline and ask questions about child benefit-related credits and other things that can help to increase your contribution record if necessary.

yelf

Considering the state of public debt, the changes in demographics, and the government have started discussions whereby citizens may have to insure against unemployment (to take the burden away from JSA):

Would you consider contracting out on the basis that if you contract out at least you have that money in your own pot - as opposed to a potntially failing ponzi scheme.

(so ignoring all other benefits and drawbacks)?