debate about opting out and basic state pension

knittingnash

Hi,
I am in a debate with a friend about state pensions. He believes that by opting out of SERPS on the advice of Mrs Thatcher he has lost his entittlement to a basic state pension. I think his entittlement to a basic state pension is linked to NI contributions and as long as those are maintained he will get the basic pension all be it small, Can anyone help me settle this debate.

jem16

knittingnash wrote: »

Hi,
I am in a debate with a friend about state pensions. He believes that by opting out of SERPS on the advice of Mrs Thatcher he has lost his entittlement to a basic state pension. I think his entittlement to a basic state pension is linked to NI contributions and as long as those are maintained he will get the basic pension all be it small, Can anyone help me settle this debate.

Contracting out(not opting out as that measn something different) of SERPS/S2P does not lose the entitlement to the basic state pension. A small part of the NI contributions was rebated into the contracted out scheme.

As long as he has the required number of years NI contributions, he will receive the basic state pension.

peterg1965

What happened to the opted out money, the SERPS element ? It must have gone somewhere? Final salary pension, personal pension? It didn't just disappear. Secondly, I don't think Mrs Thatcher was an IFA back in the eighties. Sounds like your colleague has a case of sour grapes, maybe he/she didn't do enough retirement planning and is now looking for a convenient scapegoat.

sleepless_saver

Instead of debating, tell him to get himself a state pension statement so he can see for himself! https://www.gov.uk/state-pension-statement

kidmugsy

peterg1965 wrote: »

Secondly, I don't think Mrs Thatcher was an IFA back in the eighties. Sounds like your colleague has a case of sour grapes

As a rule of thumb, people who bang on about Mrs Thatcher may be viewed as mad, bad, or dangerous to know.

Jack_Griffin

The basic state pension is based on number of years NI paid, opt out or no opt out.
It will be the better of £107xYears/30 or £147xYears/35
(this years rating, increased annually for inflation).

Whatever pension scheme your friend was in should have had better terms as a result of the opt out as their employer had reduced NI contributions and the reduction would have been paid into his pension fund, but what pension they turned out to be and whether they'd have been better than what SERPs gives is probably not so easy to determine.

http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/final-salary-schemes/contracting-out-of-serpss2p

CONTRACTING OUT IN MONEY PURCHASE, PERSONAL AND STAKEHOLDER PENSION ARRANGEMENTS IS NOT POSSIBLE FROM 6 APRIL 2012.
By contracting out, instead of building up entitlement to the Additional Pension (previously known as the State Earnings Related Pension Scheme (SERPS) and now known as the State Second Pension (S2P)), an individual will instead transfer that pension liability to a private arrangement.

hyubh

kidmugsy wrote: »

As a rule of thumb, people who bang on about Mrs Thatcher may be viewed as mad, bad, or dangerous to know.

Yes, a bit like someone starting a pensions rant with the words 'Gordon Brown'.

Jack_Griffin

hyubh wrote: »

Yes, a bit like someone starting a pensions rant with the words 'Gordon Brown'.

In the future we'll all be blaming Steve Webb.

Linton

knittingnash wrote: »

Hi,
I am in a debate with a friend about state pensions. He believes that by opting out of SERPS on the advice of Mrs Thatcher he has lost his entittlement to a basic state pension. I think his entittlement to a basic state pension is linked to NI contributions and as long as those are maintained he will get the basic pension all be it small, Can anyone help me settle this debate.

Your friend is very wrong, you are broadly right. What he lost out on was the SERPs pension (otherwise known as S2P or AST), which was intended to be a salary linked addition to the basic state pension. But the amount that wasnt paid on into SERPS was paid into a private pension which should provide much the same return as the SERPs would have done.

When/if the proposed pension changes to remove SERPs/AST/S2P entirely and incorporate the benefits accrued so far in the final pension are implemented there will be a complex calculation to reduce the new combined entitlement to account for contracted out periods. Exactly how the numbers work out will depend on when your friend is due to retire and how many NI years he has accrued.

kidmugsy

hyubh wrote: »

Yes, a bit like someone starting a pensions rant with the words 'Gordon Brown'.

Yes, pension rants should begin "The great socialist and Labour MP Cap'n Maxwell .....".

Whereas "Gordon Brown" should be deployed in rants about the the deficit. And the price of gold.

hyubh

kidmugsy wrote: »

Yes, pension rants should begin "The great socialist and Labour MP Cap'n Maxwell .....".

Whereas "Gordon Brown" should be deployed in rants about the the deficit. And the price of gold.

Have you tried stand up comedy, or failing that, the comments threads on telegraph.co.uk?