Opted out of SERPS

dustyfairy101

I wonder if someone could give me some advice, as a young naive 18 year old I was advised by a a financial advisor from Allied Dunbar to opt out of SERPS and take out a pension with them. I did so, however after a approx 5 years I could no longer afford the payments, they advised me to take a break from paying and go back to making payments when I could afford too. I did not get back in touch with them until about 8 years or so ago when they told me that the pension had lapsed and I could do nothing more. I believe now that AD doesnt even exsist. Could some one please advise me ............I am now 43 , will I get anything when I reach retirement age ? and what should I do ? I am a married housewife with small children.
Thanks in advance

dunstonh

I wonder if someone could give me some advice, as a young naive 18 year old I was advised by a a financial advisor from Allied Dunbar to opt out of SERPS and take out a pension with them.

Age 18 and contracting out seems like the best thing to do.

I did so, however after a approx 5 years I could no longer afford the payments, they advised me to take a break from paying and go back to making payments when I could afford too. I did not get back in touch with them until about 8 years or so ago when they told me that the pension had lapsed and I could do nothing more.

Had it lapsed? (that means no value left) or does it still have a value but cannot be topped up/restarted any more? (known as paid up)

I believe now that AD doesnt even exsist. Could some one please advise me ............I am now 43 , will I get anything when I reach retirement age ?

AD is now Zurich. What do your pension statements say as to how much you will get.

and what should I do ? I am a married housewife with small children.

The cold hard truth is that if you do nothing (or next to nothing in your case) for retirement provision then you can look forward to the state pension in retirement. The basic state pension is little over £5000 a year at the moment. Benefits will increment this and your wife may have some qualification (you can request state pension forecasts).

If you never contracted back in, then you will only get the basic state pension plus what personal provision you have.

bilbo51

If you have not had a recent one, you should get in touch with Zurich and ask for a statement for your pension fund. Quote the policy number (sometimes called "plan number") if you have it and your National Insurance number.

Then at least you will know how much you have already got set aside and will be able to plan from there.

shadowleague

Dunstonh, why was it good for her to opt out of serps at 18?

SL

dunstonh

shadowleague wrote: »

Dunstonh, why was it good for her to opt out of serps at 18?

SL

Contracting out (not opting out as that means something else) worked best they younger you were. Time invested being the main reason coupled with the size of the rebate. The optimal time to contract back in was between 40-45 typically (although early on, there were years were the rebates were still suitable for 50 year olds to be contracted out). An 18 year old has 50 years of investment returns.

The benefits of contracting out mean that most now will be quite happy they contracted out. Contracting out allows choice of commencement age (not state age), tax free cash (compared to none with state) and better death benefits and choice of how the income is paid.

Angelang_2

I wonder if anyone on the site could advise me.

I was 20 when one of my friends who was a trainee financial adviser recommended that I contract of of Serps. He said at the time it was a beneficial thing to do and I was in the right age bracket for it. The government at the time were also pushing this and offering incentives. I contracted out with Standard Life and paid into a pension with them from 1991 up until 2001. I purchased a property in 2001 and my adviser had a review of my insurances and endowments. At that time he recommended switching my contracted out contributions to AIG which then became ALico as Standard Life werent performing all that well.

From 1998 i joined my works final salary occupational pension and i am still paying 9.6% of my salary each month into this (as is my employer).

With the new changes to the Pensions from April 2012, it means that i will have to opt back into the S2P. Will that mean that all my contributions will be passed into the state fund or will they remain with Alico? Aliso I have read about misselling and to be honest when i contracted out I didnt really know what it was that i was doing as i was so young, my friend didnt really go over the pros and cons, as far as he was concerned it was a good thing to do.

I have also read that even if the contracted out pension you started may not pay as well as if you had kept the money in the state pension, and the only benefit would be that you could take some pension from it sooner that your state pension. This is not the case with me as i opted for any payments to be made on retirement which would be 67yrs for me and not 55yrs as it seems this is when you can claim from.

What should i do? any advice. Should i leave the 20 years cash where it is? Was i missold because i didnt really know what i was contracting out of and that it could underperform? My friend didnt mention this possibility to me at the time. I'm not sure what to do.

Any advice would be appreciated.

dunstonh

I was 20 when one of my friends who was a trainee financial adviser recommended that I contract of of Serps

So, well under the typical age 45 threshold for being contracted back in. So far so good.

From 1998 i joined my works final salary occupational pension and i am still paying 9.6% of my salary each month into this (as is my employer).

Most defined benefit schemes are contracted out. So, since 1998, this scheme has priority. (assuming it is contracted out - you should check)

With the new changes to the Pensions from April 2012, it means that i will have to opt back into the S2P.

The changes in 2012 do not affect defined benefit schemes.

Will that mean that all my contributions will be passed into the state fund or will they remain with Alico?

again, assuming your DB scheme is contracted out, then nothing will happen. The pension with Alico has been a bit like a bucket under a tap that was turned off (or had a hosepipe attached to divert the water elsewhere).

I have also read that even if the contracted out pension you started may not pay as well as if you had kept the money in the state pension

That has been the case since day 1. It may or may not provide an income greater than contracted in benefits. Its largely considered cost neutral though.

and the only benefit would be that you could take some pension from it sooner that your state pension.

That is not the only benefit. In addition to that death benefits are greater, you can take 25% tax free cash and you get a choice of income options that may be more desirable to you.

This is not the case with me as i opted for any payments to be made on retirement which would be 67yrs for me and not 55yrs as it seems this is when you can claim from.

The age you put on your application is irrelevant. For most schemes, it is just there to provide an annual statement projection to. You can decide to take early or later. (some schemes or funds may have advantages or disadvantages if not taken at scheme age)

What should i do? any advice. Should i leave the 20 years cash where it is?

This is an area of regulated financial advice. You are not going to get an answer on the internet. Or at least you wont get an answer that is of any help as it requires of cost/benefits analysis against modern alternatives to see which is best. Without figures it cant be done.

Was i missold because i didnt really know what i was contracting out of and that it could underperform?

No you were not mis-sold. You were under 45 and havent been contracted out into that scheme since 1998 and up to 1996, everyone who had contracted out was financially better off (SIB did a review in 1996 - hence that date and outcome). Rebates didnt start dropping until Labour got into power (stealth tax - although they did increase them again in their final years). So, the lower rebates that hit contracting out didnt apply to you.

I'm not sure what to do.

See a local IFA and get them to do a pension analysis.

jamesd

Look at the investments you want to use. Compare the costs of holding those investments where the money is now - if they are even available - and the costs of competitors. Move if the competition is cheaper. Watch out for the chance that you have special benefits like guaranteed annuity rates where the money is now that could make it better to stick with poor investment performance.

Or take it to an IFA found by referral, past experience or a visit to unbiased.co.uk .

You were doing this at a time when the expectation was that most people who were contracted out would be better off, in part because of the high contracted out rebates used. In recent years lower rebates have made it a bit less likely to be better off but you can ignore this because yours were from before this time. The big benefits remain, being able to take the benefits from age 55, unlike the Additional State Pension, and being able to take a 25% tax free lump sum. Chances are that you will be better off as a result of your decision, so no need to worry about that.

From April the distinction between contracted out and other pension money will vanish for money in defined contribution pots. If you have other defined contribution pots that would be a good time to consider combining them all.

When you reach 55 you could consider taking benefits. Then you can invest the lump sum in a S&S ISA and use income drawdown for income. Reinvest the income and perhaps the lump sum in a pension to get tax relief on the free money. If reinvesting the lump sum there are limits on how much you can do at once, ask closer to the time if you're considering this.