Opt out of SERPS/S2P?

linlew_2

I had a policy with abbey life when I contracted out of SERPS. It has now ended because the value that the abbey life was providing was less than if I had not contracted out which from what I can understand is not permissable under the guideline rules.
What happens now?
Do I need to do anything or will I be automatically contracted back in?
What will happen to the money whilst I was with the abbey life?
Any help will be appreciated.

The_old_fart

I am retired (since2002). My state pension is around £175 weekly including full state plus extra for SERPS. The latest statement about the top up from SERPS not being indexed seems to me like a classic government move. It may not be illegal but is certainly not morally correct. The government of my time persuaded me and my contemporaries to invest or even legally obliged us to contribute. My advice is be very cautious!

The old fart

webmister22 wrote: »

I am a 25 year old guys and I've just decided its time to start a pension. A friend has mentioned that they have opted out of SERPS/S2P. Does anybody know how this works and whether it is a good idea for someone my age?

Thanks in advance.

webmister22

<EDITED BY PAL: THE QUESTION OF CONTRACTING OUT COMES UP ALL THE TIME, SO I HAVE MADE THIS THREAD STICKY. I HAVE ALSO TRIED TO CHANGE THE TITLE BUT MY BOARD GUIDE POWERS ARE TOO WEAK AND THE PROPER MODERATORS ARE IGNORING ME )

gizz_mo

Hi Guys
I'm very confused by the whole S2P/SERPS opting in-out question. Hoping for some clarification from the experts here.

When I was 19 I opted out of SERPS with a private pension plan. I didn't make any additional contributions to the pension at the time (or ever since), so the pot has just been building up with the contracted out of SERPS amounts.

When I was 25 I joined a company with a pension scheme who contributed to an in-house company pension for me. Although I had the option to make additional payments to my pension I never did.
- During this time, would my contracted out pension have stopped receiving rebates? Would they have been going to my Company Pension or still accruing in my personal pension?

In 2009 now aged 38, I was made redundant, and for the last 12 months I have not been getting any incoming pay. I have however signed on for NI credits only. Would these have included a contribution to S2P? I am guessing probably not.

I am now registered as self-employed (aged 39) as I start a new contract job next week.

So, in terms of my pension, I am a little confused to say the least:-

- I have read on here that self employed people don't pay S2P and therefore don't get rebates.
- Should I contract back into the S2P or does it not matter now that I have registered as self-employed?
- What happens to the personal pension pot that was receiving my contracted out pension rebates if I do nothing? Does it just stay dormant and then pay out when I retire?
- If I take a permanent job in future and contract back in, what happens to the contracted out pot then? Does that get paid back to the government?

Any light anyone can shed will be very much appreciated.
Thanks in advance.

jamesd

linlew wrote: »

What happens now?
Do I need to do anything or will I be automatically contracted back in?
What will happen to the money whilst I was with the abbey life?

Ask Abbey Life. If you want to stay contracted out you can set that up with another personal pension though if you're in your late 40s or older it may not be worth doing since the plan is to end contracting out in a couple of years. From the early 40s it starts to become increasingly unlikely that at normal state retirement age the contracted out option would pay as much as S2P. The main advantage then comes for single people and those who want to retire earlier than state retirement age.

gizz_mo wrote: »

When I was 25 I joined a company with a pension scheme who contributed to an in-house company pension for me. Although I had the option to make additional payments to my pension I never did.
- During this time, would my contracted out pension have stopped receiving rebates? Would they have been going to my Company Pension or still accruing in my personal pension?

Usually yes, a defined benefit (final salary or similar) work pension is normally contracted out and uses that money to accumulate part of its benefits. That would have replaced any contracting out into a previous personal pension. You'd have to check with the scheme administrators to be certain.

gizz_mo wrote: »

for the last 12 months I have not been getting any incoming pay. I have however signed on for NI credits only. Would these have included a contribution to S2P?

No S2P, only basic state pension.

gizz_mo wrote: »

I am now registered as self-employed (aged 39) as I start a new contract job next week.

And no S2P from self-employed NI contribution rates either, unless you make yourself a PAYE employee of your company, which is usually not advantageous for taxes.

gizz_mo wrote: »

- I have read on here that self employed people don't pay S2P and therefore don't get rebates.

Correct

gizz_mo wrote: »

- Should I contract back into the S2P or does it not matter now that I have registered as self-employed?

Might as well but it makes absolutely no difference until you're in PAYE employment again.

gizz_mo wrote: »

- What happens to the personal pension pot that was receiving my contracted out pension rebates if I do nothing? Does it just stay dormant and then pay out when I retire?

Any personal or work defined contribution pensions can continue to have their investments managed by you. A work defined benefit pension would increase by inflation (subject to assorted possible variations that I haven't studied in detail). You could take pension income from them at age 55 for personal pensions and at scheme retirement age for a work pension.

gizz_mo wrote: »

- If I take a permanent job in future and contract back in, what happens to the contracted out pot then? Does that get paid back to the government?

Nothing, they carry on exactly as they have been. Once the money is in a contracted out pot, it stays there.

MS_Dolphin

Hi,

I'm looking to contract out. I'd like to do it with one of the major life companies online, but I've had a scout around and can't find any options.

Does anyone know a link - happy with any of the usual suspects - Aviva; Scot Wid; Scot Life; L&G etc.

Thanks,

MS D

dunstonh

I'm looking to contract out. I'd like to do it with one of the major life companies online, but I've had a scout around and can't find any options.

Does anyone know a link - happy with any of the usual suspects - Aviva; Scot Wid; Scot Life; L&G etc.

They all allow contracting out. However, you have to specifically request it. Although buying direct to provider is rarely the most cost effective way.

Contracting out is being abolished from 2012/13 tax year. So there will be very little benefit.

MS_Dolphin

dunstonh wrote: »

They all allow contracting out. However, you have to specifically request it. Although buying direct to provider is rarely the most cost effective way.

Contracting out is being abolished from 2012/13 tax year. So there will be very little benefit.

Thanks for the help, its the specifically requesting it bit that I'm looking for.

I know its being abolished from 2012/13, but I think the merits of contracting out still exist - IF the individual knows what they're doing and the circumstances are right - and it still makes for interesting debate.

For me:

I want to access the benefits from 55 (not 90 )
I want the TFC
I have an ATR of about 9.9/10
I want to self manage - the funds wont stay in stakeholder for long.
I have real concerns over the funding position of a PAYG system run by the govt - far better to have control in my own hands.

dunstonh

All good reasons for doing it and I dont blame you. I would do the same if I could.

MS_Dolphin

Why can't you do it - self employed?

You need to find a good IFA to give you some advice lol.

Only kidding, appreciate the help.


I've only recently become employed, so will contract out from now until they tell me I can't.

I know the argument for contracting back in, but it does surprise me that this is the way the govt is going, particularly given the growing burden on the state and the move towards compulsion and personal accounts.

jamesd

You might also find it interesting that Hargreaves Lansdown accepts contracting out. Might be more in line with your investing interests and it'll probably be easier than with the big insurance companies.