Second State Pension Issues

JezR

It is a common but inaccurate understanding that SERPS worked on a yearly basis, ie for each contracted in year a certain amount of additional pension was 'banked' and is then valorised year on year. This is more or less the case for SERPS and S2P after 1997 though.

However, for 1978-97 the period is in effect taken as a whole, with the additional state pension calculated as the total earned over the whole period minus the contracted out deduction. Due to elements potentially being valorised in different ways depending on the term of the scheme someone with a period of contracted in employment may find the ASP reduced to zero.

You will need to check up what method of valorisation of guaranteed minimum pension was used in the scheme you left in 1995. If it was done under the fixed rate method it will have been increasing at 7% per annum which for much of this time will be ahead of the increase in earnings, used to valorise the ASP. Hence your COD will have been growing and ASP after deduction declining.

xylophone

scheme you left in 1995

The OP was contracted in between 1985 and 1995.


He will have a GMP from 1978 -1985 and for 95 - 97.

Hs scheme administrator for the first contracted out scheme should be able to advise how his GMP is revaluing in deferment.


If fixed rate, the up to end 85 would be revaluing at 8.5%

I am guessing that the OP is still in the job that he took in 1995 - he will have a GMP for 95-97, but the GMP system ended then with the scheme reference test.

Contracting out will end completely with the inception of the New State Pension.

MichaelJohn

I actually joined a new company in late 1984 and joined the pension scheme in 1985. They changed all the pension arrangements in 1995 following a major restructure. I left in 2001 and was enrolled in their (the new company's) new Stakeholder scheme. The company folded in 2013. Currently although working I am not in any pension scheme

JezR

Yes it seems I made a mistranscription in the end date of the main period of contracted-out employment of the OP as 1995 rather than 1985 and hence the later revaluation rate. (Or maybe flipped in my mind the contracted-in and -out periods.) Nevertheless I hope the principles were accurate.

Private company schemes are the main ones that fall into this issue.

MichaelJohn

All my pension schemes have been provate company ones. One till 1983 I was in a final salary scheme - it is now closed to new members but predicts to pay more than all the others since! In 1984 I joined another final salary scheme which a few years later morphed into a money purchase scheme with promises of earlier retirement on a higher pension. In retrospect the conversion cost people dearly as if you converted contributions into the 'new' lump sum it equated to < 2% growth per annum!. The others since have all been unimpressive - the stake holder one offsetting low charges with minimal growth. I think the only beneficiaries have been the IFAs.


Going back to my original post the whole thing leaves a bad taste if the COD explanation is right - virtually like having a savings account with a negative interest rate. No wonder IFAs are non committal on contracting out/in. The advice re 1985/95 period was obviously very poor putting it politely!

dunstonh

ll my pension schemes have been provate company ones. One till 1983 I was in a final salary scheme - it is now closed to new members but predicts to pay more than all the others since!

most final salary schemes were contracted out. Plus, most final salary schemes were much better value for money for the individual than money purchase schemes.

The others since have all been unimpressive - the stake holder one offsetting low charges with minimal growth. I think the only beneficiaries have been the IFAs.

That is just being silly. Stakeholders are largely a niche product nowadays. They offer basic funds aimed at basic investors. Will never be the best investment option and will never be the worst. That is the whole point of them. Nobody gets put in a stakeholder pension for the benefit of the adviser. Even product providers ran most stakeholders at a loss (most quoting around year 15 as the point they would likely see profit).

No wonder IFAs are non committal on contracting out/in.

Its was largely cost neutral after 1997 after Labour reduced the rebates. Prior to 97, everyone that had contracted out had been better off (SIB did a review in 1996). However, you cant contract out any more using individual schemes.

The advice re 1985/95 period was obviously very poor putting it politely!

As mentiond above, contracting out in individual schemes (which only started in 88) for that period was a very good thing.

MichaelJohn

I was contracted in during the period (1985 - 1995) referred to - hence the comment about poor advice as the pounds become pence!!!

dunstonh

MichaelJohn wrote: »

I was contracted in during the period (1985 - 1995) referred to - hence the comment about poor advice as the pounds become pence!!!

ahh so you missed the best years of contracting out (88-96).

However, there was a mass advertising campaign at the time by the Govt and incentives in the early years with an increased rebate if you contracted out before a certain date.