I need help with my pension!

Jessikita1983

Hi, I am really stuck with what to do. Not blowing my own trumpet but I am usually quite good at grasping things very quickly, but I am in a right pickle with this pension malarky!

I am a 28 year old woman, I work for a local council. I have paid 6.5% of my salary into the pension scheme since I started 4 years ago (I bought another 6 months service with another pension pot). This contracted out of SERPS. Can anyone help me with these queries? (Please do direct me to a financial advisor!)

1.) Being contracted out of SERPS does this mean I will get less state pension as I pay a different rate of NI?

2.) I am guarenteed to get back at least what I contributed? And if yes:
a.) will it be relative to money's worth in the future or
b.) will it be worth the amount I have paid in today's money

any help greatly appreciated, before I just come out the pension and save the money/buy another property.

dunstonh

I am a 28 year old woman, I work for a local council. I have paid 6.5% of my salary into the pension scheme since I started 4 years ago (I bought another 6 months service with another pension pot).

So far so good....

This contracted out of SERPS. Can anyone help me with these queries? (

SERPS was abolished many years ago. You are contracted out of the State second pension which replaced it (also known as S2P for short).

1.) Being contracted out of SERPS does this mean I will get less state pension as I pay a different rate of NI?

Yes it does. However, it is factored into the benefits you get from the occupational pension scheme.

2.) I am guarenteed to get back at least what I contributed? And if yes:
a.) will it be relative to money's worth in the future or
b.) will it be worth the amount I have paid in today's money

You are buying defined benefits which are far in excess of what you are paying in. There is no investment element and no explicit guarantee you will get back more than you pay as there isnt a need. Its so much a no brainer to be in it and worth so much more than you pay personally that there is no need to.

any help greatly appreciated, before I just come out the pension and save the money/buy another property.

That would be one of the worst financial mistakes you could ever make.

jem16

Jessikita1983 wrote: »

1.) Being contracted out of SERPS does this mean I will get less state pension as I pay a different rate of NI?

SERPS hasn't been around for a long time. What you are contracted out of is the State 2nd pension (S2P). You will just get the basic state pension of approximately £100pw. You will have no entitlement to S2P unless you have built it up before (or indeed after) you joined the LGPS.

2.) I am guarenteed to get back at least what I contributed? And if yes:
a.) will it be relative to money's worth in the future or
b.) will it be worth the amount I have paid in today's money

Being a final salary pension, what you will get back is guaranteed in that there is no investment risk. You will get a percentage of your final salary worked out on the number of years service that you have.

any help greatly appreciated, before I just come out the pension and save the money/buy another property.

That would be the worst financial decision you ever made.

hugheskevi

1.) Being contracted out of SERPS does this mean I will get less state pension as I pay a different rate of NI?

Yes.

You are contracted out of State Second Pension, SERPS ceased to exist a decade ago, and was replaced by State Second Pension.

As a consequence of being contracted-out, you will still get the Basic State Pension (£102 p/w), but you will get much less State Second Pension (possibly none at all).

2.) I am guarenteed to get back at least what I contributed?

Yes.

a.) will it be relative to money's worth in the future or
b.) will it be worth the amount I have paid in today's money

Neither, it doesn't work like that really - if it did, it would be worth considerably more than what you put in today.

It is relative to your salary and years worked, and the amount accrued increases by CPI if you leave the scheme.

before I just come out the pension and save the money/buy another property.

That would be a very serious mistake and cost you a lot.

Not blowing my own trumpet but I am usually quite good at grasping things very quickly, but I am in a right pickle with this pension malarky!

I don't understand - you say you are good at grasping things, you have done some research, or picked up some things about contracting-out, asked reasonable questions, and yet you thinking about doing something that is on a par with using Payday loans.

The country is on the verge of a National Strike over changes to public service pensions, and yet you are considering opting-out - I'm genuinely interested, why are you thinking about this when you appear to have put some thought into it unlike many of the posters considering similar action?

atush

No, you are not being Done.

Yes you will get back everything you put in and all of our money too ;-) Ie you will get back what you put in and like 4or more times more.

Go ahead, opt out and buy property. We will have a BBQ party as we will save loads and you will lose loads.

Not really, as we wont get the money back. It will just be spent on the next PS worker who takes up their scheme as even with the new changes it is the best thing going ANYWHERE. Unless you are a director of a govt owned bank that failed of course.

bilbo51

Currently your pension is made up depending on two elements of service.

Those elements are
1. Membership of the pension scheme up to 31st March 2008
2. Membership of the pension scheme after 31st March 2008.

The significant difference between the two elements is that entitlement under element 1 is based on 1/80th of final salary for every year of membership, and under element 2, it's 1/60th of final salary.

Under element 1, you will also get a lump sum of 3 times the pension payable under that element.

Example based on the Greater Manchester LGPS scheme (other schemes may vary): Jim joined the scheme in January 1985 and has been a member ever since. His normal retirement date is 18th June 2016.

Assume his annual final salary on 2016 is £30,000.

Element 1
Membership to 31 March 2008 = 23 years and 66 days = 23.18 years.

Pension = Pay * Membership / 80 = 30000*23.18/80 = £8,692.50.
Lump sum = 3 * Pension = £26,077.50

Element 2
Membership from 1st April 2008 to 18 June 2016 = 8 years and 78 days = 8.21 years.

Pension = 30000*8.21/60 = £4,105.00

Total benefits = Pension £12,797.50; Lump sum £26,077.50.

The pension will rise every year in line with CPI.

Jim is quite lucky as he has a good degree of certainty as to what his pension will be. The government proposals to change the public sector schemes will only affect the few years left to his retirement. His pension so far accrued will not be affected.

However, even under the current proposals, the LGPS still represents extremely good value for money for younger members such as yourself.

You should treat the figures above as if they were given to you by a bloke in the pub. I think they're right but I'm not an authority.

Jessikita1983

I don't understand - you say you are good at grasping things, you have done some research, or picked up some things about contracting-out, asked reasonable questions, and yet you thinking about doing something that is on a par with using Payday loans.

The country is on the verge of a National Strike over changes to public service pensions, and yet you are considering opting-out - I'm genuinely interested, why are you thinking about this when you appear to have put some thought into it unlike many of the posters considering similar action?[/QUOTE]

My main issue has been listening to clueless armchair experts, which I must stop! As I am only 28 and have 40 years left at work, I repeatedly get told that "things will have changed so much by the time you retire, I wouldn't bank on getting any pension" and the like. However, being of reasonable intelligence I do not like to listen to the BS, I like to do my own research. Hence me posting on here!

Thanks all. Been very helpful!