Opt out of SERPS/S2P?

Paul_Herring

Draved wrote: »

Thanks for the feedback. What happened to these S2P contributions?
Do they stay part of your private pension pot?

They will remain in your pension fund in a sub-pot called 'protected rights' until such time[1] that the distinction between NI rebates (protected rights) and your normal contributions disappears.

The "protected rights" part of your fund was required to also provide an annuity (regardless of whether you wanted an annuity or drawdown from the rest of your fund.) It was also required to provide an annuity to your spouse. This will be no longer the case when the distinction disappears.


[1] The distinction appears to have ceased already according to http://www.moneymarketing.co.uk/pensions/protected-rights-cannot-be-used-for-flexible-drawdown-until-2012/1025918.article .

Draved

And because I opted out I will receive less flat rate basic pension?

dunstonh

And because I opted out I will receive less flat rate basic pension?

No. Contracting out has no impact on the basic state pension. It only reduces the SERPS or State second pension element. With the new single state pension proposals, current information suggests you will possibly be one of the gainers from having been contracted out.

BTW, its contracting out. Not opting out. Opting out is the phrase used for people not joining an occupational pension scheme. Contracting out is the phrase used with SERPS/S2P. The thread title is wrong.

I will also add a point to Paul's post that most providers have changed their statements and reference to protected rights to say "former protected rights". If the pension was ever transferred it would be combined. Providers have generally made no software changes on existing plans to combine the non-protected rights and former protected rights together as a single pot. However, they are treated as such in all other ways.

Paul_Herring

most providers have changed their statements and reference to protected rights to say "former protected rights".

Judging from my Dec 31st 2012 statement from Clerical Medical, CM aren't one of them (hence the uncertainty in my previous post.)

dunstonh

Paul_Herring wrote: »

Judging from my Dec 31st 2012 statement from Clerical Medical, CM aren't one of them (hence the uncertainty in my previous post.)

CM stuff is being rebranded under SW but the layout of the last stuff I have seen seems similar to the old CM material except the logo/name. SW statements refer to it as from Government payments. A more unusual method compared to others where former protected rights is more common.

I'm not sure how much money is being spent on CM as there are these constant rumours that Lloyds is looking to get shot of it (and possibly Scottish Widows). You dont see much development money being spent on their product range that is for sure and the website features and servicing is falling behind others.

Paul_Herring

You dont see much development money being spent on [Clerical Medical's] product range that is for sure

Quite the opposite - they've recently stopped customers being able to view their portfolios online, and instead directing them to an 0845 number. Not at all pleased.

Johnn64

I contracted out of SERPS in 1987 and remained opted out until April 2012 when the scheme ended when I believe I was contracted back in..... or so I thought !
I have tried speaking with the SERPS helpline, but it was difficult to understand what was being said to me.
I was advised that I did contract out of SERPS back in 1987 (Scottish Widows scheme), but as I have a pension with my current employer (local government pension), Iam STILL contracted out and part of my NI contributions go into that pension. The adviser definitely said that I WAS CONTRACTED OUT.
So I am still struggling to understand how it all works and I have a number of questions that I hope someone can help with here which will help me fully understand the pension conundrum !

I have read that the earlier you contracted out of SERPS the better, so I guess there is no issue of me being miss sold the option to contract out of SERPS. Is this right and was contracting out the right thing to do ?

The government have now been talking about the new “flat rate” pension which will come into force in 2017, where employees will need to have 35 years of contributions to be eligible for the proposed new state pension. I have 19 years left to work to retirement age and I had 5 years paying into the regular pension scheme before “contracting out” in 1989, which gives me a total of 24 years of contributions.
Will I therefore not receive the full proposed flat rate pension as I have not contributed a full 35 years of NI payments?

I should have asked the SERPS advisor when the Scottish Widows scheme was frozen. Does anyone know if this would have been in 2012 when the “contracted out” schemes ended or would this have been when I started with my current employer in 2004 and started the “local government pension scheme”?

I think I am right in thinking the money that is in the Scottish Widows scheme is now a “protected rights pot”. I am not 100% sure what “protected rights” means and I am also concerned that if this pot of money is frozen, its not being invested further or increasing in value. Can I invest this money elsewhere or transfer it to a SIPP to try and gain a better return ?

Any help or advise would be much appreciated to get through this minefield.

dunstonh

I contracted out of SERPS in 1987 and remained opted out until April 2012 when the scheme ended when I believe I was contracted back in..... or so I thought !

Everyone was contracted in back in April 2012 if they had not been already.

I was advised that I did contract out of SERPS back in 1987 (Scottish Widows scheme), but as I have a pension with my current employer (local government pension), Iam STILL contracted out and part of my NI contributions go into that pension. The adviser definitely said that I WAS CONTRACTED OUT.

That is correct. When you joined the LGPS, that is a contracted out scheme but a different type of contracting out to a money purchase scheme (like SW). It would have taken priority over SW. So, whilst SW was still contracted out on paper, it would not have been receiving any rebates. Contracting out only ended for money purchase schemes. Not defined benefit schemes.

I have read that the earlier you contracted out of SERPS the better, so I guess there is no issue of me being miss sold the option to contract out of SERPS. Is this right and was contracting out the right thing to do ?

If you were contracted out and under 40-45 at the time then it was fine.

The government have now been talking about the new “flat rate” pension which will come into force in 2017, where employees will need to have 35 years of contributions to be eligible for the proposed new state pension. I have 19 years left to work to retirement age and I had 5 years paying into the regular pension scheme before “contracting out” in 1989, which gives me a total of 24 years of contributions.

This would suggest you have two pensions as personal pensions only came into existence in 1988. The one for your regular contributions from before 1988 would be a section 226 retirement annuity contract.

Will I therefore not receive the full proposed flat rate pension as I have not contributed a full 35 years of NI payments?

The LGPS will change to reflect the new rules as that will have to go contracted in from that date.

I should have asked the SERPS advisor when the Scottish Widows scheme was frozen. Does anyone know if this would have been in 2012 when the “contracted out” schemes ended or would this have been when I started with my current employer in 2004 and started the “local government pension scheme”?

Frozen is the wrong term. It cannot apply to the SW pension. You would have been contracted back in on April 2012 on paper. However, in reality, you stopped getting rebates in 2004 when you joined the LGPS. So, in effect, you havent been contracted out via the SW plan since 2004.

I think I am right in thinking the money that is in the Scottish Widows scheme is now a “protected rights pot”. I am not 100% sure what “protected rights” means and I am also concerned that if this pot of money is frozen, its not being invested further or increasing in value. Can I invest this money elsewhere or transfer it to a SIPP to try and gain a better return ?

Not quite but almost there. Protected rights was the name given to contracted out benefits. However, for money purchase schemes, these were abolished in April 2012 and reclassified as non-protected rights (the name given to funds built up from personal contributions).

The SW pension cannot be frozen and will be subject to investment returns wherever you have it invested. Why would you want to move it to a SIPP? A SIPP is geared to the more knowledgeable investor (you can do more wrong with a SIPP than a personal pension or stakeholder pension - not a problem is you know what you are doing but if you dont, it can be an expensive folly)

Johnn64

Thank you very much for your detailed response Donstonh, very much appreciated.
Am I right thinking that the pot of money in the SW account is from 1987 to 2004 and that it will still be invested in that scheme (making money) until my retirement ? If this is the case, then there would be no need to move it elsewhere, unless there are better options out there. If there were alternative options, can I simply transfer the money to somewhere else ?

dunstonh

Am I right thinking that the pot of money in the SW account is from 1987 to 2004 and that it will still be invested in that scheme (making money) until my retirement ?

yes

If this is the case, then there would be no need to move it elsewhere, unless there are better options out there. If there were alternative options, can I simply transfer the money to somewhere else ?

Correct. You dont need to move it but its possible modern options are better than older ones. Not always though. Pensions are like any retail product. Modern ones can be cheaper but not necessarily always and some older versions have better terms. Scot Widows, for example, (assuming it is a proper Scot Widows plan and not an ex bank one) offered guaranteed annuity rates on a number of their plans right up until the mid 90s.