SERPS pension losses

thehorologist

Following advice from the governmet I opted out of SERPS in 1987 and my contirbutions and incentives were diverted to an insurance company as protected rights. The insurance company advised me in 1994 to return to SERPS, which I did.
I am about to take my state pension in September 2011 and I have been notified that £20.53 will be deducted (contracted out deduction) from my total state pension becuase of the period my contribution were diverted.
The ammount the insurance company offer me is equivilent to a weekly sum of only £16.24 and can be increased to only £18.69 if I excersized the best market option.
Can the National Insurance Contribition Office really deduct more money from my pension than my diverted SERPs can acheive?
A further point is that had I not been missled into contracting out not only would I be receiving the notional £20.53 but unlike the market opition, my state SPs would have been subject to increase. Is there any form of compenstion for the bad advice that has led to my losses?
Chris.

jamesd

Yes, more can be deducted than the amount you get from investments. If you get more from the investments the deduction doesn't increase.

You do have some good options, though:

1. Wait until next year. You'll be able to buy an annuity with fewer restrictions because the distinction between protected rights and other pension pots is being eliminated from April 2012. No need for one with 50% spouse benefit or RPI inflation protection after this. If you are female you may gain from the requirement to offer annuities that do not use gender as a factor but it'll take a while for that to work through the annuity quotes. If you are male you might gain from losing the requirement to buy an annuity at unisex rates but that court decision could eliminate this.

2. Use income drawdown instead of buying an annuity. It looks as though your pot is around £30,000 or so from the income numbers given and that's just about reasonable for drawdown using an inexpensive provider. Income drawdown requires an understanding of investments or use of an IFA to manage the money. You've demonstrated less than good investment performance and the amount is probably too low for an IFA to be interested, so this may not be a realistic option for you.

3. If you have anything that could affect your health, like being overweight or smoking, discuss an annuity with an IFA because you can get higher annuity income than with standard annuities that assume good health. You may need to wait until next year to benefit most from this because of the current requirement for a spouse benefit.

When you contracted out you took responsibility for that part of your pension and the state has no further obligations with respect to it. You were the person responsible for making the investment decisions and taking the gains or losses associated with those investment decisions. If you didn't pay any attention to it and make any investment decisions, that's unfortunate for you but it was still your responsibility. At the time when you were contracted out just about everyone should have done better from contracting out than staying contracted in. The failure to do that in your case is due to the investments and pension company that you chose to use. Unfortunate for you but those are the facts.

dunstonh

The ammount the insurance company offer me is equivilent to a weekly sum of only £16.24 and can be increased to only £18.69 if I excersized the best market option.

Is that before or after tax free cash has been taken? - important this point

Can the National Insurance Contribition Office really deduct more money from my pension than my diverted SERPs can acheive?

Yes.

When you contract out, you are making a decision to invest the money with the potential to make more on the contracted out rebate than you get if you contract in. If your investments do well, you get more, if you dont do so well, you get less.

I am well on track to being massively better off from the few years I was contracted out. You appear to be a little worse off (but may not be if you have not factored in the tax free cash). Thats the way it goes.

A further point is that had I not been missled into contracting out not only would I be receiving the notional £20.53 but unlike the market opition, my state SPs would have been subject to increase. Is there any form of compenstion for the bad advice that has led to my losses?

Why do you think you have been mis-sold? You havent given any indication of a mis-sale here.

You certainly cannot complain about the investment returns you have received as they are always an known. How many times in the last 24 years have you reviewed and adjusted your investments?

You say you have got the best rate on the open market option. This means you must be using an IFA. Ask your IFA to explain how it works to you.

Loughton_Monkey

1. The Government never 'advised' people to opt out. All they did was create the option for you to do so if you wished.

2. I have never heard of DWP being able to calculate any 'deduction' - such as the £20.53 you state. Once opted out, DWP simply don't 'accrue' the SERPS part of pension, and to my knowledge never calculate, or store, what 'would have been'. Certainly from my own pension forecast, I can tell how much SERPS I am getting (for the portion of time I was in) but have no means of knowing how much is 'missing' due to the time I was contracted out. So where did you get this information?

3. History has shown that generally speaking, opting out has been favourable to most. Imagine 3 people - all with exactly identical salaries. One stays contracted in, the other two contract out. Experience shows that if one of those opting out invested in 'normal' balanced funds, he would be better off. If the third chooses some specifically 'safe' or 'whacky' funds, then how can the Government be responsible for that?

When you get to state pension age, you can defer it, and receive a lump sum based roughly on 2% above base rate. That's 2½%. So imagine you choose that option. Would you go to the DWP in a year's time and say "Hey! I've just found out that if I had put the money in First Direct regular saver...., I would have got more! I've been robbed....."?

With the benefit of hindsight, if you had put your SERPS payments into Chinese and Indian funds, you'd probably be looking at £40 extra a week. Would you have been asking them where you can repay the excess?

jamesd

DWP will present it as a deduction from the amount of additional state pension that is payable.

dunstonh

3. History has shown that generally speaking, opting out has been favourable to most. Imagine 3 people - all with exactly identical salaries. One stays contracted in, the other two contract out. Experience shows that if one of those opting out invested in 'normal' balanced funds, he would be better off. If the third chooses some specifically 'safe' or 'whacky' funds, then how can the Government be responsible for that?

In 1996, the SIB did a review and said that everyone that had contracted out to that date was financially better off. The dot.com crash took a hit and that dropped to around 50% and Labour reducing the rebates didnt help during their early years. Then it improved during the credit boom years to most being better off before the credit crunch and recession then occurred followed by some recover (which is still early days). However, it has generally ended up being viewed on average as a cost neutral thing. i.e. some better, some worse but not much in it for the average.

Those that are likely to have come off worse are the lazy investors who did nothing with their investments. i.e. no risk reduction as they got closer to retirement or no rebalancing of the investments or adjusting as times change.

That said, I think the OP may be better off as the OMO is showing £18.69. For it to be classed as an OMO, that means it is after the 25% lump sum has been taken (otherwise it is classed as an IVPPP - immediate vesting personal pension plan). So, the OP is looking at £18.69 and 25% tax free lump sum vs £20.53 with no lump sum payment.

So, if you take the OMO figure of £18.69 after tax free cash and pro-rata it up to what it would be if no tax free cash was taken then it would be £24.92 pw. That is £4.39 pw better off than being contracted in.

thehorologist

[FONT=&quot]Following advice from the government I opted out of SERPS in 1987 and my contributions and incentives were diverted to an insurance company as protected rights. The insurance company advised me in 1994 to return to SERPS, which I did.
I am about to take my state pension in September 2011 and I have been notified that £20.53 will be deducted (contracted out deduction) from my total state pension because of the period my contribution were diverted.
The amount the insurance company offer me is equivalent to a weekly sum of only £16.24 and can be increased to only £18.69 if I exercised the best market option.
Can the National Insurance Contribution Office really deduct more money from my pension than my diverted SERPs can achieve?
A further point is that had I not been misled into contracting out not only would I be receiving the notional £20.53 but unlike the market option, my state SPs would have been subject to increase. Is there any form of compensation for the bad advice that has led to my losses?

[/FONT]

dunstonh

Didnt you like the answers you got on the duplicate post you made this time last night?

Do you think posting a copy and paste of the same question is going to lead to different answers? If you have made the effort to copy and paste from your earlier thread then you could have made the effort to read the responses and answer the questions.

https://forums.moneysavingexpert.com/discussion/3310240

jamesd

Yes, more can be deducted than the amount you get from investments. If you get more from the investments the deduction doesn't increase.

You do have some good options, though:

1. Wait until next year. You'll be able to buy an annuity with fewer restrictions because the distinction between protected rights and other pension pots is being eliminated from April 2012. No need for one with 50% spouse benefit or RPI inflation protection after this. If you are female you may gain from the requirement to offer annuities that do not use gender as a factor but it'll take a while for that to work through the annuity quotes. If you are male you might gain from losing the requirement to buy an annuity at unisex rates but that court decision could eliminate this.

2. Use income drawdown instead of buying an annuity. It looks as though your pot is around £30,000 or so from the income numbers given and that's just about reasonable for drawdown using an inexpensive provider. Income drawdown requires an understanding of investments or use of an IFA to manage the money. You've demonstrated less than good investment performance and the amount is probably too low for an IFA to be interested, so this may not be a realistic option for you.

3. If you have anything that could affect your health, like being overweight or smoking, discuss an annuity with an IFA because you can get higher annuity income than with standard annuities that assume good health. You may need to wait until next year to benefit most from this because of the current requirement for a spouse benefit.

When you contracted out you took responsibility for that part of your pension and the state has no further obligations with respect to it. You were the person responsible for making the investment decisions and taking the gains or losses associated with those investment decisions. If you didn't pay any attention to it and make any investment decisions, that's unfortunate for you but it was still your responsibility. At the time when you were contracted out just about everyone should have done better from contracting out than staying contracted in. The failure to do that in your case is due to the investments and pension company that you chose to use. Unfortunate for you but those are the facts.

thehorologist

Apologies for the duplicate message last night, I am new to this Forum and format. Thank you for your replies.
I have a pension pot in total of only £17.000 and would be of little interest to an IFA.
I opted out of SERPS 1987-1994 intially based on government hype, publicity and incentives in 1987.
It later turned out the government and insurance companies had made a !!!! up in their projections for people in my age group (male born 1946) I acted promptly on the new advice and opted back into SERPS in 1994.
It has only now that I am about to take state retirement that it has become apparent how costly to me that opting out has been. (see original post)
I picked up an opinion that this senario is likely to become the next big misselling scandal.:-
"If you have been opted out of SERPS you can definitely make a claim for compensation. You can do it yourself or appoint specialists in the pension arena like SerpsReviews.co.uk.
In a nutshell, if your providers accept responsibility we will ask your providers to work out whether you would have been better off in or out. If you should never have been opted out, you may get awarded compensation."

dunstonh

I picked up an opinion that this senario is likely to become the next big misselling scandal.:-

No. Some claims companies thought so a few years ago but the FSA looked into it about 4 years back and found a failure rate of just 1.5%. that is very low. The FSA also issued a flow chart that made it easy to identify those 1.5%. Since then virtually all the claims companies stopped looking at it other than a few scam companies or those that use it as an excuse to allow them to transfer the pension to something else (And earn around 5% of the value by doing so).

[TEXT DELETED BY FORUM TEAM]