Contracting out off SERPS According to FTadviser the goverment is cheating people

bill_on_line

Hi

Pension group, the following article is heavy reading, but I though an expert may be able to shed some light on the goverments backhanded tack-ticks.

I read this article this morning and it looks like I and many others will be worse off when they retire in the future if they contracted out of Serps in the past. The coalition government seems to be changing the guarantees made in the past by previous goverments?

The article talks about occupational pensions that contracted out of Serps, but will it also affect people who contacted out of Serps through a private appropriate personal pension, I did both over the years?




Following acticle By Tony Hazel Published Jun 04, 2014

There is something sinister about governments attempting to rewrite history. But that is exactly what the Coalition is doing right now with promises made long ago to those who contracted out of Serps.

In 1978, when final salary pensions were more common, most employers opted scheme members out of Serps. Instead, they had to promise to give a guaranteed minimum pension (GMP) that was at least as good as Serps. Both employer and employee paid a lower rate of National Insurance.

When the employee retired, the employer paid the GMP, but the inflation increases on GMP were covered by the government and added to the state pension.
On pensions accrued from 1988, employers had to pay the first 3 per cent of inflationary increases, but the government covered anything above this. These rules covered Serps payments until 1998.



The promises were spelled out by successive governments and repeated in parliamentary statements held within the parliamentary library.



Yet, anyone who retires after 5 April 2016 who was contracted out during these years will not benefit from the government-backed increases.


Some pensioners will be thousands of pounds worse off as a result.


You may wonder why these changes have had so little publicity or why the Coalition has failed to make them clear to those affected.
It is because it is pretending they are not happening. The department for work and pensions claims that the state was never responsible for these increases.
What is more, in an Orwellian development, a DWP spokesman told me it is removing references from the parliamentary library.
“We are working with the parliamentary library to remove references to DWP indexing GMPs,” he said. “This stems from an oversimplification on additional state pension indexation.”
If such an “oversimplification” had been made by a financial company, they would be fined and ordered to pay restitution to investors. The government, however, appears likely to get away with this.


Governments have a track record for misleading on Serps.
In 1986, the law was changed to reduce widows’ benefits. But government leaflets did not include this information until 1996. Even after this, people who called phone lines were being misinformed.
Information on inflationary increases to the GMP can be found in documents such as SN4956, published on 10 February 2012, and in A Guide to the State Pension, published by the Pensions Service in April 2004. Get your copies before they are erased from history.




Here is a link to the article FTadviser, probably need set up a free account to see it.


http://www.ftadviser.com/2014/06/04/opinion/tony-hazell/dwp-s-orwellian-pensions-move-is-rather-sinister-OBV42u7b9Ovbz4QFn49RYJ/article-0.html

bigadaj

There are never any guarantees on pensions, all we have now appears to be an unofficial rule that changes shouldn't be made within ten years of retirement age.

The problem with any journalism is that it relies on sensationalism to gain attention, any balance is not helpful, just take one position and ignore alternative arguments.

Interestingly I would challenge the OP to name something which is guaranteed not to change over forty or fifty years, even without involving politicians.

Contracting out provides separate benefits, there are anomalies whilst the new pension system beds in but in general many who have contracted out will be better off under the new pensions system, as they may well hit the flat rate limit and yet have another pot on which to draw.

dunstonh

The article is making reference to contracted out occupational schemes and not contracting out via a personal pension. Just in case anyone is wondering. Same phrase but different outcome.

With personal pensions, contracted in benefits have been reduced 5 times over the years and not once in that period were contracted out benefits reduced. Indeed, the benefits have been increased. Legislative risk is just one of the risks that are possible. No option is free of risk of change.

zagfles

bigadaj wrote: »

Contracting out provides separate benefits, there are anomalies whilst the new pension system beds in but in general many who have contracted out will be better off under the new pensions system, as they may well hit the flat rate limit and yet have another pot on which to draw.

Yes, also those with a deferred contracted out scheme will usually get their GMP increased by fixed revaluation at a much higher rate than inflation prior to retirement (somewhere between 4% and 8.5%).

This would have resulted in the money being taken off their SERPS, but under the new scheme they'll get the increases in their GMP without it being offset by a reduction in their SERPS.

In general the new rules will likely be beneficial for those who've contracted out, but there will be exceptions.

xylophone

Discussed here https://forums.moneysavingexpert.com/discussion/comment/65583593#Comment_65583593

Annie1960

bigadaj wrote: »

Interestingly I would challenge the OP to name something which is guaranteed not to change over forty or fifty years, even without involving politicians.

Equitable Life GARs?

chris_james_2

Unfortunately i think i will lose out big time when the new State Pension comes in April 2016. I will be eligible for the State Pension when i am 65 (October 2016).
I have been essentially Contracted out since 1989 - first in a contracted out private pension scheme and since 2005 in the NHS Pension Scheme.
I know - lucky old me to have the two pensions but i fear i will lose out quite considerably with the State one.
I will of course have built up contributions in the old Serps prior to 1989 but i have no idea of my entitlement at present - Government Pension people say that until the rules are clear they can only give me a Pension Statement based on the current rules.
Anyone out there at all clear on this?

greenglide

A pension forecast from DWP will show you what your current entitlement, under STP you get get at least that much (plus two more years for this and next year plus uprating of any AP).

If you were not contracted out up to 1989 you may have a reasonable amount of AP from SERPS depending how much you earned.

chris_james_2

My Pension forecast by DWP was about £138.00 - i thought this bore no relation to the new scheme - are you saying i would get at least this amount?

grey_gym_sock

yes, your entitlement up to april 2016 (called the "foundation amount") is whichever gives a higher figure out of the old and new ways of calculating it.

so if the old way gives £138, and the new way (c. £148, minus deductions for contracting out) is less, you get the £138.

atush

Plus if that forecast is a year old, your foundation amt will be higher- it will be set just before the new pension comes in.