Should I opt back into SERP

lesandflynny

Hi

I am now off sick from work, age 41. I have a retirement fund which will stand still now. They reckon I will not work again.

I opted out of SERPS at 22, should I opt back in


Any ideas

ps. What is SERPs

jamesd

SERPS stands for State Earning Related Pension Scheme. It was replaced by the State Second Pension (S2P) from 6 April 2002. There is also the term Additional State Pension which means the benefits paid from the combination of these two, or just the contributions when talking about either SERPS or S2P, without having to write both names.

It is an earnings-related scheme, where the pension you get depends on your contributions. In your case, you won't receive anything from the state except the basic pension for the years when you had opted out but the money will instead have gone to whatever private or work pension you had nominated when you opted out. For any years when you were opted in, you'd receive some money based on the value of those contributions.

The opt in or out choice is only really significant when you are in work and earning money, since it only affects what happens to contributions made in that year, not what has happened in the past. So, it doesn't matter in your case if you don't work. You do need to have some pension to receive the opted out funds, so if it is a works pension they will probably op you back in automatically once you can no longer contribute to it.

S2P is deliberately loaded to favor those on lower incomes, so it seems fairly likely that it would be best for you to be opted in, in case you did low income or part time work of some sort in the future.

Their thought that you won't work again may well be wrong, since it may only apply to the work you have been doing until now. It's worth considering whether there's other work you could do and at 41 you've plenty of time to learn a new type of work, depending on what's limiting you.

For planning you should ask for a copy of your state pension forecast. This will tell you the expected amount of state pension and Additional State Pension that you are expected to get at retirement.

Is the retirement fund a work pension scheme? If so, you should ask them how much they expect it to pay you and when. Who controls the fund, you or them?

If you have any personal pensions you should also say more about them, since it's good to try to build up a complete picture.

For existing pension funds where you have a choice of investments it's vital that you know how the money is being invested and check on that and tune it up regularly, since the initial choices are often poor.

If you have some starting money and don't mind taking free money from bookmakers, and can resist the temptation to gamble, you might want to take a look at the Gambling introductory offer loopholes message board here to see if you fancy making a thousand or two in a year from the startup offers of gambling sites. Something to do if you're stuck at home. Don't even consider doing it if you like a flutter and might gamble, instead of placing matched bets.

lesandflynny

Wow Thanks James

that sure is a lot to take in.

My Pension is a group scheme and I tranferred a significant lump sum into it when work started it up. The work scheme was not brilliant 3% if you match and I used to add more.

There is 90k in my fund which I had hoped to get at aged 50 but now I am told it will be 55. Any ideas what I will get a month from that if I draw down at 55,

Will I also get a state pension at 65 or is this means tesetd against my private pension?

I will be on certain benefits soon so will this automatically put me back in the state system?

I don't like to gamble, particularly not at the moment so its a no for me.

Many Thanks, sorry for more questions

dunstonh

There is 90k in my fund which I had hoped to get at aged 50 but now I am told it will be 55. Any ideas what I will get a month from that if I draw down at 55,

About £4500 a year.

Will I also get a state pension at 65 or is this means tesetd against my private pension?

The basic state pension (currently £4381) is not means tested and will be paid at age 65 (rising to 68 depending on date of birth).

EdInvestor

lesandflynny wrote:

My Pension is a group scheme and I tranferred a significant lump sum into it when work started it up. The work scheme was not brilliant 3% if you match and I used to add more.

There is 90k in my fund which I had hoped to get at aged 50 but now I am told it will be 55. Any ideas what I will get a month from that if I draw down at 55,

It's quite important that you pay attention to this decent sized fund so that it grows over the next 15 years and pays you a decent pension (more than 4.5k)

Where is it now and what is it invested in? What annual charges are you paying? Do you know what proportion is protected rights (Serps) money and what not?

jamesd

lesandflynny wrote:

My Pension is a group scheme and I tranferred a significant lump sum into it when work started it up. The work scheme was not brilliant 3% if you match and I used to add more.

There is 90k in my fund

It sounds as though this may be a group personal pension. If so, you are responsible for managing the investments and it's vital that you do a decent job. The initial choices are often wrong. So, please find out who runs it and who is responsible for managing it. If it's you, there's some general guidance on good investing available here as well, so you can at least avoid the things that'll really hurt the value.

lesandflynny wrote:

Will I also get a state pension at 65 or is this means tesetd against my private pension?

Yes, you will automatically get the basic state pension.

lesandflynny wrote:

I will be on certain benefits soon so will this automatically put me back in the state system?

Yes, for the purpose of qualifying years for the basic state pension, I don't know about S2P. In your case it's effectively certain that you will get the full basic state pension since the number of qualifying years is going to be reduced to 30. In any case, you'll get one qualifying year per year on benefit, so you'll be in decent shape as far as that goes.

lesandflynny wrote:

I don't like to gamble, particularly not at the moment so its a no for me.

Same here. There's no actual gambling involved there, though, it involves placing bets at two bookies, one for each possible result. You lose say 10% of the total bet but once you qualify for the introductory offer after placing enough bet value you end up ahead by 50-75% of the introductory offer value. But still, I haven't done it myself since gambling just bores me...

lesandflynny

My pension is with Norwich Union and it is managed, currently via advisors brought in by the Company. I am currently taking advice from them as to what is the best way forward. But as Norwich Uninon gets good ratings I had assumed I would just let it grow in there. What else could I do, low risk!

They recently changed from scotish equitable to norwich as the fees are less, so I am assuming the fund is in safe hands.

I think about 29k serps and 61k other.

Cheers

Diane

jamesd

You're 41 and can't take the pension for 14 years. 5 and more years is the threshold for stock market investments and you're well into the time range where low risk isn't the best strategy. But low risk may still be your preferred strategy, because of your own risk tolerance level.

But... is this a personal pension in your name only or is it one that has pooled the funds of many employees into the same pension account? If it's just in yoru name you have choices you can make, if it's pooled, probably not.

For a pension the name of the company - Norwich Union - is of some interest but it's not really what matters. The key information is the funds in which the money is invested.

dunstonh

Norwich Union are one of the better providers for financial strength but as James says, its not that which is important. Its where it is invested that matters.

Pensions are an investment tax wrapper. They are not the investment.

lesandflynny

Hi Guys

I am almost certain it is MY PENSION, but I will check to ensure 100%

I am off to see our advisor in the New Year, in very simple terms, can you guide me as to what I should be asking?? These are the things that occured to me already:

What happens to my Pension (tax free wrpapped savings) when I leave my company.... can I saty with them and enjoy the same terms as agreed within the company package, I think essebtially, they get a fee off the company and we and our families get access to free advice.


Thanks again.........

Milarky

Assuming sickness is temporary and you will work again....

You would requalify for the rebate, but not while off work and (importantly) you acquire no right to S2P whilst on an sickness benefit (as far a I can see) - just towards your basic old age pension.

If the year (or part year) in which you left work your earnings totalled at least above £4368 (2006/07) that year is 'safe' as it collects the minimum entitlement for S2P on top of the basic. If contracted out you get a reduced rebate - and the difference (if any) tops up on the state pension side.

On the general 'contracting out' question, remember that they are due to pull all rebates anyway in five or so years time. Thereafter those benefits will (of the Additional Pension) will be piped through the state pension - 'good' from the point of mitigating risk, but decidedly less 'good' in terms of flexibilty - no lump sum or option to take this benefit earlier than the (increased) state pension age.

So make hay with the rebates now, because they will be disappearing in a few years..

On the matter of deferring state pension for a bigger amount (10.2% annual enhancement) I believe that also applies to and Additional Pension attaching. So being contracted back in after 2012 or whenever until 66 will give that valuable 'option' - which contracting out takes away.

I think this makes it easier to decide what to do - stay out (bird in the hand) for what's left of contracting out and then stay in (bird in the bush) for a reasonable period. That way it may just balance out for most people.