How do we opt back into SERPS

trickytrolleys

some pensions companies, in the last few years, have advised people to opt back in.

OP, what type of pension do you have ?

seven-day-weekend

Scat, does your LEA job come under the Teachers' or Local Government Pension scheme?

Either is very good, I personally would take further advice.

I joined the LGPS when I was not earning enough to pay tax and NI. I eventually went back full-time for a while. I paid into it for just under ten years, some full-time, some part-time and am due to receive a pension in 2014 of just over £2000 pa and a lump sum of £5600. (These figures are based on todays rates, the pension is index-linked). I think this is better that if I had stayed in SERPS, even though I only paid in for a relatively short time.

HTH.

dunstonh

trickytrolleys wrote: »

some pensions companies, in the last few years, have advised people to opt back in.

OP, what type of pension do you have ?

They havent advised anyeone to contract back in. If you look at the wording you will see that they dont use language that strong. The paint a picture that allows you to draw your own conclusion.

There are many people that have contracted back in based on the mailshots issued. However, they should have remained contracted out but with a better pension instead. Contracting out is still viable for a lot of people. You just have to do it with a decent pension thats all. Not an old legacy pension investing in with profits.

When I was 20 we had some people hard-selling through work. I didn't have a clue about it but they convinced me it was a good idea and I signed.

And it may well still be the right thing. In 1996, everyone who had contracted out was financially better off according to the SIB. After the stockmarket crash, nearly everyone was worse off. In 2005 it was reported that around half were financially better off as the stockmarket recovered. Another 2 good years would have seen that improve further. so the marjority are currently better off.

Its mainly those that contracted out early that have benefited the most as they got the bigger rebates. Labour started to reduce the rebates (stealth tax) after they got into power and that made it harder for the investments to beat the benefits of contracting in. However, next years rebates (and the following years) have been increased again and contracting out is favourable for the young.

There are pros and cons of contracting out.

the main disadvantage is that you are subject to investment returns. However, contracting in is subject to legislative risks, such as the Govt reducing benefits or killing it off altogether. Indeed, three times already the Govt has reduced contracted in benefits but has not clawed back money from those that were contracted out.

Advantages are that you dont have to wait until age 65-68 (depending on what your state retirement age is) to get your contracted out pension. You can also take a 25% tax free cash lump sum from your contracted out pension but not from contracted in. Whilst investment risk means you may not make enough, the converse is true that you may make more. Some death benefits are better as well with contracted out funds.

If the Govt moved to a single state pension in the years to come, then its highly unlikely that those who have contracted out would have to repay their money (they havent in past reductions and the impact on the economy would be far more damaging. It would also require primary legislation). However, those that are contracted in would lose their contracted in pot. Both groups would get the single state pension. Whilst the single state pension is not on the cards at the moment, it was an intended aim of Labour and many MPs. It was also a recommendation in the reports on what the Govt should do.

So, the decision to contract in/out is one you should make knowing the pros and the cons. A lot of the things only time will tell.

EdInvestor

scat wrote: »

My other half keeps nagging me to opt back in.

In that case he doesn't really understand how the state pensions work.

I'm working part-time and under the earnings threshold so still not paying NI or Tax. I'm now 37.

The system works like this: your NI contribution goes towards the 2 state pensions, the basic and the SERPS, now S2P.If you opt out of the SERPS, then the bit of the NI which would have been allocated to paying your S2P pension, is rebated to you into your private or company pension.

But if you are not paying any NI in the first place, you are not getting allocated any credits into either your basic state pension or your SERPS/S2P, and thus you're not eligible to receive any rebates (or indeed any state pension credits) for any year where this is the case.

Arguably what you should be thinking about is whether or not you should be paying basic NI.How many years have you clocked up so far for the basic state pension? [If you decided to pay voluntary NICs, they will only qualify for the basic state pensions, so again opting out or in isn't relevant]*.

I work for the LEA so can opt into their pension scheme but am on such a small income already I'm loathe to lose any more of it!

The issue of opting out isn't really relevant until you work full time and pay NICS, at which point the best advice is likely to join the LEA pension scheme and remain opted out.

*I would suggest that you get a state pension forecast, but the computer is offline until next year while they update records. This follows a change in the rules which means you need only 30 years NI conts to get the basic state pension if you retire after 2010.

LuciferTDark

I was conned into opting out when I was 17 to join my companies pension scheme, they made me redundant not long after, 5 yrs later I joined another company with a pension scheme in place, 10yrs later redundant again & now I have no pension to look forward to when I finally am allowed to retire, not even SERPS.

I wonder if it's too late to sue the people who pressured me to opt out?

ps I have the details of both pensions & it seems the original one can't be transferred or added to the other one to make it slightly bigger, It's only be pence a month once it's due anyway.

trickytrolleys

Dunstonh, i know for a fact that one company wrote to all policyholders stating that they were going to opt everyone back in unless they were advised otherwise - and they did it

EdInvestor

LuciferTDark wrote: »

I was conned into opting out when I was 17 to join my companies pension scheme, they made me redundant not long after, 5 yrs later I joined another company with a pension scheme in place, 10yrs later redundant again & now I have no pension to look forward to when I finally am allowed to retire, not even SERPS.

I wonder if it's too late to sue the people who pressured me to opt out?

ps I have the details of both pensions & it seems the original one can't be transferred or added to the other one to make it slightly bigger, It's only be pence a month once it's due anyway.

You appear to have 2 deferred final salary pensions which will rise by inflation or 5% a year until you retire.

Perhaps you also have a third pension into which you opted out between the two jobs with the pension schemes?Or did you opt back in during that period?In which case you will get some SERPS.Along with your basic state pension of course.

Not quite as bad as all that.;)

dunstonh

trickytrolleys wrote: »

Dunstonh, i know for a fact that one company wrote to all policyholders stating that they were going to opt everyone back in unless they were advised otherwise - and they did it

So, they didnt give advice then.

They took a bulk decision to do it. Most of the low quality pension providers or pensions sold by tied agents did this. Some did it, not because it was the best option for the policyholder but over concerns that they didnt sell contracting out correctly in the first place and by moving everyone back into S2P they would limit their liability.

Advice is when someone tells you that you should do a certain thing because it is best for you. It isnt when an insurance company makes a bulk decision.

I was conned into opting out when I was 17 to join my companies pension scheme, they made me redundant not long after, 5 yrs later I joined another company with a pension scheme in place, 10yrs later redundant again & now I have no pension to look forward to when I finally am allowed to retire, not even SERPS.

How can you be conned into joining a company pension scheme?

I wonder if it's too late to sue the people who pressured me to opt out?

You would look good in court. "Your honour, I want to sue these people that gave me a choice to join the company scheme or not which I chose to do because they are now going to give me an income in retirement far more than I paid into the scheme."

Perhaps the better option is to understand what you have before you go looking to sue someone.

trickytrolleys

i stand corrected

dunstonh

trickytrolleys wrote: »

i stand corrected

It highlights a problem though that you thought it was advice and plenty of others would as well. It has led to a "you should contract in" mindset when in reality it should be "is my pension good enough to contract out" and if the answer is no, then you should be looking to update your pension to something better.

Once you do that, then its a case of "do the benefits of contracting out appeal to me or not"?