Opt out of SERPS/S2P?

dunstonh

Since 1978 when SERPS was established, it has NEVER been reduced retrospectively

[font=Calibri,Calibri]There are several reasons to suspect that S2P might be reduced in the future, including the following: [/font]

• Serps has been reduced 3 times for men and 4 times for women since introduction.
• Government has stated its intent to change S2P to a flat-rate scheme and this might affect S2P entitlements that have accrued prior to such a change.
• If Government bows to the pressure to scrap additional state pensions and increase the Basic State Pension, S2P entitlements that have already accrued might be lost.

It is very unlikely that any Protected Rights would be clawed back in the event of changes to S2P. None were when SERPS was changed and it would take primary legislation to do so. Some might say that a bird in the hand is worth two in the bush.

Typically (subject to age and income) you need about 2 to 3% p.a. growth above the rate of inflation to match the benefits of contracting in. This involves investment risk and you need an investment portfolio that has the potential to do that.

The advantage of being able to take contracted out benefits at age 55 (50 until 2010) and take a tax free lump sum of 25% on it may be more attractive than the contracting in option of only being able to commence benefits at state retirement age, whatever that ends up being and not being able to take a tax free lump sum.

Then you have death benefits which could be better under contracting out.

In reality, there is no one answer that fits all. You have the risk of legislation on one side or the risk of investment returns on the other. You then have a few pros and cons thrown in to the mix. This very much makes it a personal decision based on your pension investment porfolio, your views and your situation.

EdInvestor

dunstonh wrote:

[font=Calibri,Calibri]There are several reasons to suspect that S2P might be reduced in the future, including the following: [/font]

• Serps has been reduced 3 times for men and 4 times for women since introduction.
• Government has stated its intent to change S2P to a flat-rate scheme and this might affect S2P entitlements that have accrued prior to such a change.
• If Government bows to the pressure to scrap additional state pensions and increase the Basic State Pension, S2P entitlements that have already accrued might be lost.

It is very unlikely that any Protected Rights would be clawed back in the event of changes to S2P. None were when SERPS was changed and it would take primary legislation to do so. Some might say that a bird in the hand is worth two in the bush.

Personally I tend to find this argument quite persuasive: it is far too easy to muck about with S2P because so few people understand it.

http://news.bbc.co.uk/1/hi/business/4772560.stm

The BBC says Treasury won't cave in on the BSP, but I'm sure the issue won't go away, and with the ongoing demise of f/s pensions, ......how long will it last?

ceebee_2

One aspect of contracting in/out, which I've mentioned before in these Forums (Fora?) is the need to pay income tax on your state pension. Currently, my Basic + Graduated + Serps pension entitlement exceeds my personal tax allowance. Had I had the opportunity to 'contract out' and then (in the near future) withdraw 25% tax free, it would have given more 'food for thought'.

Apologies for banging on about this, but it makes me angry, every year, when I fill in my Tax Return, particularly because I miss out on the married man's allowance by 3 months. Thus you cannot trust the Chancellor not to change the rules.

paul2468

Just had a letter from the abbey saying that they will contract everyone back into serps unless you reply saying that you want to stay contracted out.
Dont know what to do for the best...I am 49 this year and have been contracted out for 12 years.....Can anyone say what is best to do ?

dunstonh

Can anyone say what is best to do ?

Both contracting in and contracting out have advantages and disadvantages. Many of which are based on your personal circumstances. We dont know those so we cannot comment.

Only place to get proper contracting out advice is from an IFA. Although I do know some IFAs that refuse to offer advice in that area due to the complex nature and more likely potential liability issues.

BARGAINS4ME

paul2468 wrote:

Just had a letter from the abbey saying that they will contract everyone back into serps unless you reply saying that you want to stay contracted out.
Dont know what to do for the best...I am 49 this year and have been contracted out for 12 years.....Can anyone say what is best to do ?

Also had a letter from Abbey Life but it doesn't say that they will contract everyone back in automatically...they are leaving the decision to you...reply if you want to contract back in, I am in similar situ and not sure whether to contract back in...

Abbey life also mis-sold me a pension linked mortgage when interest rates were high and then as pension growth 10 years later was no where near what they had predicted, I hadn't paid anything off mortgage but interest and decided to switch back to repayment mortgage to avoid short fall on pension fund lump sum.

Was anyone else mis-sold pensions by Abbey Life ?

dunstonh

Also had a letter from Abbey Life but it doesn't say that they will contract everyone back in automatically...they are leaving the decision to you...reply if you want to contract back in, I am in similar situ and not sure whether to contract back in...

That makes more sense. With all the recent compliance messages saying that bulk contracting people back in could lead to mis-sale complaints, putting the option with the policyholder makes much more sense. Either the policyholder chooses on execution only basis (meaning its their own fault if they get it wrong) or they go to an IFA (who then takes the legal liability for the advice).

krugman

BARGAINS4ME wrote:

Was anyone else mis-sold pensions by Abbey Life ?

I was advised by Abbey to take out a stake holder pension in the nineties to cover my mortgage. About 5 years later, I sold that house and now have a repayment mortgage, though I am keeping the stake holder going.
A while back I received a letter from tham advising me that there would not be sufficient finds in my pension to pay of the mortgage.
I suppose that as I am no longer relying on the pension to pay off my mortgage, I can't exactly claim any compensation for the fund not performing?

I had a letter from Abbey the other day saying that unless I specify otherwise, I would be contracted in to the S2P scheme.
I presume that any funds which have accrued in my Stake Holder pension will end up in my S2P fund ?

I now have an employer who I would like to stay with for the long term and they run a pension fund, so as soon as I am eligible I shall be joining that one (I think).

Complicated isn't it ?

krugman

dunstonh

I was advised by Abbey to take out a stake holder pension in the nineties to cover my mortgage.

Stakeholder pensions were introduced in 2001.

I suppose that as I am no longer relying on the pension to pay off my mortgage, I can't exactly claim any compensation for the fund not performing?

Performance, or lack of, its not grounds for complaint. Also you have to remember we had a rather drawn out stockmarket crash in 2001 which would make short term performance look poor. However, on long term pensions, this is actually a very good thing to happen.

I presume that any funds which have accrued in my Stake Holder pension will end up in my S2P fund ?

The benefits from contracting out will remain in your APPP.

Complicated isn't it ?

Not at all. Then again dont ask me to service a car or build some shelves.

Baz_2

I went to a budget update for accountants the other day and one of the bullet points on the notes was "contracted out rebates". The speaker didn't expand upon that so Ive no idea what these changes could be.

Does anyone have any idea what has changed? There has been talk in this thread that the rebates may be changed to be more generous.

Any ideas?