To SERPS or not to SERPS.

Squire_Fulwood

jem16 wrote: »

Any reason why you think you would have got a bigger pension by staying in SERPS?

gadgetmind wrote: »

New thread please!

Here is the new thread as requested and I suppose the question is how would my pension be less if I had contributed to SERPS.

Please discuss.

jem16

Squire_Fulwood wrote: »

Here is the new thread as requested and I suppose the question is how would my pension be less if I had contributed to SERPS.

Please discuss.

The optimum age to contract back into SERPS/S2P was around age 44. If earlier then it was usually best to contract out. Final salary pensions are automatically contracted out as the final salary pension provided greater benefits.

So the question remains - why do you feel it would have been better to remain contracted in?

dunstonh

I suppose the question is how would my pension be less if I had contributed to SERPS

I dont get the question. Can you clarify.

Squire_Fulwood

dunstonh wrote: »

I dont get the question. Can you clarify.

Jem16 made the comment I quoted in post #1. He made it in another thread. So that we did not hijack that OP's thread it was suggested I open another thread so I did.

Not keeping up with pensions and knowing less than I should I had the opinion that had my union not contracted out of SERPS when it did that I would have a bigger state pension than I now have. Jem16's comment puts that in doubt.

I have an occupational pension and somehow the one impacts on the other. I never had to pay SERPS, never got to understand the ramifications but was interested in finding out why Jem16 said what he did.

I am hoping to learn.

skintandscared_2

I contracted out of SERPS about 22 years ago. I am now 44 - should I contract back in?

hugheskevi

I had the opinion that had my union not contracted out of SERPS when it did that I would have a bigger state pension than I now have.

You say you did not pay SERPS, and that you are in receipt of your pension now. That makes it likely that the type of pension you have now is a defined benefit (also known as final salary) type of pension, given they were the most common occupational pensions back in the days of SERPS.

If so, contracting-out means that rather than building up SERPS, you contract-out, and the Govt. charges you and your employer a lower rate of National Insurance.

If you were contracted-in, your employer would not get the National Insurance rebate, and presumably would either charge you higher contribution rates, or offer lower pension benefits to make good the difference so you may well end up with much the same overall result.

Much the same applies if your pension is of defined contribution type.

I never had to pay SERPS, never got to understand the ramifications but was interested in finding out why Jem16 said what he did.

Contracting-out is essentially a neutral decision - you just build up a different type of pension benefit, but of the same value (more or less). Some will do better than others from contracting-out, but the key point is that contracting-out itself doesn't gain or lose you money as it is a neutral decision (again, more or less, there are finer points that can be debated here such as jem16 mentions below about optimal ages to opt back in, but this is the principle).

I think what you are saying is that if you had built up the same private pension and were contracted-in, wouldn't you have a higher pension now? The answer to that is yes, but that is just because you would have been putting more into a pension. Just the same as you could have put extra into Additional Voluntary Contributions to provide a higher pension if you wished.

Final salary pensions are automatically contracted out as the final salary pension provided greater benefits.

Final salary can be either contracted-in or contracted out - quite a lot of the smaller schemes are contracted-in (so a lot of contracted-in schemes, but not that many contracted-in members of DB schemes).

I contracted out of SERPS about 22 years ago. I am now 44 - should I contract back in?

Contracting-out into personal pensions is ending from 2012, so it doesn't matter.

dunstonh

I contracted out of SERPS about 22 years ago. I am now 44 - should I contract back in?

You cant. That decision is now out of your hands. The last chance to contract in/out was in March this year. In 2012 you will automatically be contracted back in if you contracted out via a money purchase scheme. Good timing really as its generally around age 45 that you should be contracting back in.

Not keeping up with pensions and knowing less than I should I had the opinion that had my union not contracted out of SERPS when it did that I would have a bigger state pension than I now have

You would have a bigger additional state pension. However, you would have a lower personal pension and lower tax free cash and may not have been able to take it at the age you did (its only money purchase schemes, like personal pensions where you got the choice. So I assume that it what you have. Not sure what your union has to do with it)

whiskyman

All this talk of SERPS is way too late. In 2002 the State Second Pension replaced SERPS. The current Government proposal is that in the near future there will be a basic State Pension of £140 (at todays rates) per week or its equivalent at the time it is introduced. To achieve this they will stop the Pension Credit Savings element. They will also stop the Second State Pension element. As a full basic State Pension is currently £102.15 per week and the Sate Second Pension element for a person who has been on working age benefits is £19.16 per week. It looks as if you will be better off. However as the figure of £140.00 is slightly above the Guaranteed Pension Credit figure of £137.60 for a single person the Government will end up paying out very little extra if any. Pension Credit is doomed to be a thing of the past for those retiring after the introduction of the NEW Basic State Pension. Oh and by the way opting out ends next April. I hope this clarifies things for people.

Squire_Fulwood

whiskyman wrote: »

All this talk of SERPS is way too late.

This thread began after someone commented on a post I made in another thread. In that thread the OP was asking, more or less, whether he should start thinking about pensions yet.

As for myself I am already retired and I wanted to advise that once your pension is in payment you may change your attitude a little.

When young you may receive good advice about pensions involving a recommendation to wait since your investment might not be tax efficient or the wrong thing to do for you at this moment etc.

Now that I am old and can speak as someone who has been there, got it and bought the T shirt I can now reveal that the size of my current pension is of interest to me and not whether I worried too much about the tax man when young. In fact, I now think I should have tucked money away everywhere and learned to manage it myself even if it meant paying taxes.

The truth is that I did do just that and I learned how not to lose money (after a while) and am now comfortably off.

So the point I was making is simply this. When you get old don't have any regrets about provision for an income you could have made and failed to do. Start as early as you can with just a savings account if that helps.

The bit about SERPS was a factor that came into this argument since I had said that I wish I had that as well but someone pointed out that I may have not been any better off. Oh dear.

Nevertheless, I say again, don't put off the big day.

Gracchus_Babeuf

whiskyman wrote: »

All this talk of SERPS is way too late. In 2002 the State Second Pension replaced SERPS. The current Government proposal is that in the near future there will be a basic State Pension of £140 (at todays rates) per week or its equivalent at the time it is introduced. To achieve this they will stop the Pension Credit Savings element. They will also stop the Second State Pension element. As a full basic State Pension is currently £102.15 per week and the Sate Second Pension element for a person who has been on working age benefits is £19.16 per week. It looks as if you will be better off. However as the figure of £140.00 is slightly above the Guaranteed Pension Credit figure of £137.60 for a single person the Government will end up paying out very little extra if any. Pension Credit is doomed to be a thing of the past for those retiring after the introduction of the NEW Basic State Pension. Oh and by the way opting out ends next April. I hope this clarifies things for people.

If you have existing SERPS/S2P rights you will still retain them regardless of these government plans. And these are just ideas - no commitment has yet been made by the government, so they may decide not to do anything and keep things as they are. SERPS/S2P is not covered by the 'triple lock' guarantee and is only linked to CPI, so it will wither away to almost nothing in the long term.