SERPS pension losses

thehorologist

Loughton_Monkey wrote: »

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?

Initially, this information came after my claim for state pension due in September 2011. The calculations shows a deduction from my pension of £20.53 for that period I was opted out. Further enquiries resulted in a complete breakdown of the calculation and was supplied by the National Insurance Contributions Office at Newcastle upon Tyne.

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?

The Insuarnce Compony I used was approved by the government for the purpose of opting out of SERPS (and to which was added tax incentives) The hype indicated better propects outside of SERPS

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....."?

My point is that I have not been robbed but I am about to be.


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?

The government did not sponsor or approve of chinese investments but did approve of the company I placed my money with.

thehorologist

dunstonh wrote: »

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.

Thanks for the above. I regret I do not know what SIB, OP or OMO is but would comfirm that the £18.69 quoted by me is when the maximum pension pot of £17,000 is used to buy the anuity (i.e. No cash taken) therefore your figures are not relevant. What options would "lazy investors" have assuming that they had the necessary information available to be able to see how things were going wrong.

hugheskevi

Will the COD deductions remain static once the anuity is in payment or will it rise with the notional SERPS pension I could have aceived if I had not opted out?

COD will rise in line with Additional Pension (ie notional SERPS).

You say that at the time I contracted out I took reponsibility for that part of my pension. IS this really the case?

Yes

or was I bamboozeled by the information presented to me at the time which gave every indication that I would be better off opting out.

If you do not fully understand any financial matter you either need to research it in more detail or seek professional advice.

Naturaly I would not expect the insurance company to post comparative result but even if they had what options were left to me?

None, aside from choosing to contract back in for future accruals.

Based on the informaion you have kindly supplied I have the option to take the highest anuity now or wait until April 2012 in the hope of a better deal?

It is not a case of timing the market in hope of a better deal, but that from April 2012 you will have more options available to you due to legislative change concerning the type of annuity you have to purchase.

So the state takes no responsibility

What responsibility do you want them to take?

If they underwrite your investments such that you would always do at least as well as staying in the State scheme then (a) why would anyone be in the State scheme and (b) why would the State voluntarily choose to expose itself to investment risk, when it isn't even in charge of the investments?

Anyone reaching retirement with a pot less than that which they would have had if they had remained contracted-in would face a free bet and may as well invest it all in a very volatile stock - if it falls then the Govt. is underwriting it anyway, and if it doubles in value you keep it all. That isn't a risk the general tax-payer should expose itself to.

thehorologist

hugheskevi wrote: »

COD will rise in line with Additional Pension (ie notional SERPS).
Yes

So I am in a perpetual lose lose situation?

If you do not fully understand any financial matter you either need to research it in more detail or seek professional advice.

I can assure you I did research the matter and relied on the information that was available at that time. What professional advice was available at that time which would not have cost more that the benefits. Finacial advisers sometomes get it wrong but still charge and make no guarantees either.

None, aside from choosing to contract back in for future accruals.

So I had no choices other than to do what I did anyway which was to contract back as soon as information was availble.(1994)

It is not a case of timing the market in hope of a better deal, but that from April 2012 you will have more options available to you due to legislative change concerning the type of annuity you have to purchase.

No you misunderstand, my question was not one of timeing the market but taking advantage of the changes, are you paying attention?

What responsibility do you want them to take?

How much advise about the risk factor was available at the time? we can all be clever with hindsight! but relying on governement tax incentives and outlining the potential advantages does give the impreesion that the scheme was a definate winner.

If they underwrite your investments such that you would always do at least as well as staying in the State scheme then (a) why would anyone be in the State scheme and (b) why would the State voluntarily choose to expose itself to investment risk, when it isn't even in charge of the investments?

Why indeed and why would I voluntarily expose myself to investment risk if I was clealy advised of such.

Anyone reaching retirement with a pot less than that which they would have had if they had remained contracted-in would face a free bet and may as well invest it all in a very volatile stock - if it falls then the Govt. is underwriting it anyway, and if it doubles in value you keep it all. That isn't a risk the general tax-payer should expose itself to.

Excuse me but am I not a taxpayer also? I am not expecting the government to underwrite the loss of assumed advantage of the opt out option but I do not expect them to penalise me by reducing my pension by an ammount in excess of a reslistic anuity acheived thereby. The governemnt laid down the rules for diverting the SERPS payment and would not have permitted redirection to any investment which did not meet the rules. To me this indicate some form of assurance.

jamesd

You aren't in a perpetual lose-lose situation. You control the investments. Pick different ones. You want to buy an annuity, choosing not do so. That's your choice, one you're entitled to make.

You were "penalised" from the time you chose to opt out and the amount of the penalty hasn't changed. It's always been 100% of the additional state pension that you would otherwise have received for each opted out year. Every state pension forecast you obtained from the time of doing it until state retirement age would have shown you the lower income level.

You're one of a fairly small minority whose choices didn't put them in a better position. Unfortunate for you but that is the agreement and trade off that you entered into when you chose to opt out.

I think that annuity rates are currently lower than those you will obtain later and that it is to your advantage to wait. I also think that the value of the pension pot will be higher later and that it is to your advantage to wait. Whether you wish to wait is your decision, though. Nothing guarantees that I won't be wrong.

Even with no health issues there's merit in getting an IFA to check the best annuity rate available to you.

thehorologist

Thanks for your reply, although I cannot understand how I can control my investment in a way which would match what I would have earned had I not been so stupid as to opt out. (Although evidence at the time suggested I was in line to improve my pension)
As a matter of interest I did approach an IFA to see what the best anuity rate currently available is. The result of this confirmed that although better than the "best market option" I had found myself, it wa still considerably less than would have been acheived in SERPS.
The cost of going down this route (i.e. through an IFA) would have cost more than then beneift I could have acheived even over a ten year period. So why add to my losses?

I refer to a loss loss situation by which I mean my anuity buys less than would have been acheived in SERPS, the state deducts more than the proceeds of my anuity (COD Contracted out deduction) and whereas my anuity will be a flat rate (in order to acheive the best rate) the state will continue to deduct a escalating COD.

dunstonh

although I cannot understand how I can control my investment in a way which would match what I would have earned had I not been so stupid as to opt out. (Although evidence at the time suggested I was in line to improve my pension)

You decide the investments that you put inside your pension. I am massively ahead on my contracting out rebates. Some people do better with their investments, some do worse. Statistically, contracting out since 1997 has been considered generally cost neutral. i.e. you more or less end up no worse off or better off. Typical swing is a couple of pounds either side of the weekly amount.

(Although evidence at the time suggested I was in line to improve my pension)

Potentially you were. In your case the investments you chose didnt for you in that period. However, even though the income is lower, you can still be gaining from it potentially. The 25% tax free cash option is not available with contracted in benefits. A flexible commencement date is not available with contracted in benefits. Death benefits can be better on contracted out benefits. Its not all about making more/less money.

As a matter of interest I did approach an IFA to see what the best anuity rate currently available is. The result of this confirmed that although better than the "best market option" I had found myself, it wa still considerably less than would have been acheived in SERPS.

Before or after 25% tax free cash taken?

The cost of going down this route (i.e. through an IFA) would have cost more than then beneift I could have acheived even over a ten year period. So why add to my losses?

It shouldnt do unless you were employing the adviser on fee basis.

hugheskevi

I can assure you I did research the matter and relied on the information that was available at that time.

All of your comments suggest you don't understand that you voluntarily chose to take the rebate from the Govt and manage it yourself, for better or for worse. That indicates a lack of research.

Why indeed and why would I voluntarily expose myself to investment risk if I was clealy advised of such.

Because you had researched the matter.

No you misunderstand, my question was not one of timeing the market but taking advantage of the changes, are you paying attention?

You spoke about waiting "to get a better deal." This can be interpreted either as timing market or as waiting for legislative change. In my answer I referred to both.

I am not expecting the government to underwrite the loss of assumed advantage of the opt out option but I do not expect them to penalise me by reducing my pension by an ammount in excess of a reslistic anuity acheived thereby.

Then you are asking the Govt to underwrite losses...if your fund performs really badly you are asking them to pay you what you would have got in any event.

The governemnt laid down the rules for diverting the SERPS payment and would not have permitted redirection to any investment which did not meet the rules. To me this indicate some form of assurance.

There is a difference between ex ante and ex post.

How much advise about the risk factor was available at the time? we can all be clever with hindsight! but relying on governement tax incentives and outlining the potential advantages does give the impreesion that the scheme was a definate winner.

Key is the word potential.

2sides2everystory

What a classic example of how another section of government pension initiatives has gone so spectacularly off the rails and gone spinning straight into the pockets of the financial services industry.

Here we now have the OP defending himself against accusations by posters who spend large amounts of time improving their own lots or pots in the financial services arena one way or the other, who think everyone should have been reviewing their "investments" constantly for the last 25 years to make sure they hadn't inadvertently ended up any blind alleys being ripped off.

The bigger picture is that with hindsight those running the country haven't cared enough for at least 25 years to ensure robust pensions in the private sector are a safe right for all as in other countries, and the financial services companies entrusted with the contracted out contributions have treated policyholders with the same disdain as they do with the rest of their business.

It was always indeed a government problem as the OP suggested, not the individual's own problem it has become for so many as others have unfairly suggested.

wotsthat

2sides2everystory wrote: »

Here we now have the OP defending himself against accusations by posters who spend large amounts of time improving their own lots or pots in the financial services arena one way or the other, who think everyone should have been reviewing their "investments" constantly for the last 25 years to make sure they hadn't inadvertently ended up any blind alleys being ripped off.

Everyone should be reviewing their finance/ investments. Doesn't need to be done constantly and nor does it require the input of an advisor.

It's about taking responsibility for yourself. Isn't that what being a grown-up is all about?