Small SERPS amount should I combine?

lukeysl

Hi - firstly im a newbie to the forum and really don't understand pensions etc.


In short, I was advised to 'opt out' of SERPS in 98/99 when I was hourly paid. I didn't know what it meant (and still don't) but in essence created a very small pot with CIS (Coop) of £5K


I now have a Company Pension, and want to know if its a good idea to move it into that. Its such a small amount would be easier to manage down the line.


On the flip side I read SERPS advice was mis sold, and should I be looking into that side of things?


Thanks

Your_Hero

lukeysl wrote: »

Hi - firstly im a newbie to the forum and really don't understand pensions etc.

In short, I was advised to 'opt out' of SERPS in 98/99 when I was hourly paid. I didn't know what it meant (and still don't) but in essence created a very small pot with CIS (Coop) of £5K

I now have a Company Pension, and want to know if its a good idea to move it into that. Its such a small amount would be easier to manage down the line.

On the flip side I read SERPS advice was mis sold, and should I be looking into that side of things?

Thanks

It may be a small amount but this pension with the CIS contains a Guaranteed Minimum Pension which is inflation linked. This could be quite valuable to keep, although there are drawbacks to this arrangement too.

It is a complex area and normally requires professional financial advice. But for the amount in question, it may not be worthwhile. A nuisance I know, but probably better to leave it as it is.

jamesd

Contracting out of the additional state pension, which is what SERPS or S2P contracting out did, wasn't usually mis-sold. In fact, you've been fortunate, because you now have £5,000 and you would probably have nothing at all if you had not contracted out, so you're £5,000 plus future growth better off than you would otherwise be.

The reason for this is the flat rate state pension that is being introduced. The normal cap on this is the amount that a person not contracted out would have after 35 years. A person who was contracted out will still continue to increase until they reach that cap, they just get more time to do it. Instead of getting nothing for years beyond 35, they continue to get more until they reach the cap. So they can end up with the contracted out pot of money plus the maximum flat rate pension, while a person who didn't contract out would end up with only the maximum flat rate pension.

This means that almost everyone who contracted out is a winner or at least a reduced loser under the flat rate system.

You should get a state pension statement to see how many years you have counting so far and use that to work out roughly how many more it would take to get to 35 at least, and in your case as a person contracted out, perhaps more. Once the flat rate system is introduced everyone will get a foundation amount which is the higher of the new rules or old rules amounts. Then future years top that up (or not if it's already 35 contracted in years) until the maximum is reached. You won't know for certain how many years it will take to get you to the maximum until you can find out your foundation amount.

So be happy about having contracted out. You win.

You can move the contracted out pot into the company pension if it is a defined contribution pension, meaning one where there's a pot of money in your name. If it's defined benefit, meaning no specific pot for you, then it's less likely to be a good idea but it still may be. If it has a guaranteed minimum pension or a guaranteed annuity rate it's probably best to leave it where it is. CIS should be able to tell you if it has either.

dunstonh

On the flip side I read SERPS advice was mis sold, and should I be looking into that side of things?

Where did you read that? The FSA did a review into contracting out and found a failure rate of just 1.5%. (ie. 1.5% may have been mis-sold but 98.5% were not). They produced a booklet which effectively said that if you were over the age of 45 when you contracted out, then you may have been mis-sold.

lukeysl

Thanks everyone, it all makes more sense now. appreciated and ill contact CIS. How do I chk my pension foundation level?

JezR

Foundation levels won't be available until after this tax year, as the total contribution under the 'old' system needs to be known to calculate them.