I opted out of serps - helps required

dunstonh

OH was most definitely NOT better off opting out of SERPs and into a with(out)-profits pension with Equitable Life.He would have been about to claim a very substantially higher indexed-for-life state pension if he hadn't done that.

At various points over the decades, there have been periods when its not been better.  However, as it currently stands, the OP is almost certaintly better off.

Maggie Thatcher was a canny one, aiming to minimise the cost to the state, and OH fell for the opt-out bribe hook line and sinker.

Up until 1996, everyone who had contracted out was better off (SIB review at the time).   In 1997 Labour were elected and went on to reduce the rebates. A stealth tax as most people were clueless about the rebate levels as they didnt see it directly.   It was the reduction in rebates that did most of the damage and resulted in many providers auto-contracting people back in by 2003.   Labour went on to increase the rebates again towards the end of their period in power but by then, most people were contracted back in and missed out.

Margaret Thatcher was not responsible for Labour reducing the rebates.

Albermarle

and into a with(out)-profits pension with Equitable Life.

The performance of the opted out pension is obviously a key issue as well. 

Mine was 100% equity invested with Standard Life ( More by luck than judgement ) and has grown a lot. Not just during the time whilst the NI contributions where going in, but also since then as well. As I get nearer to retiring I have moved it into more medium risk funds though.

dunstonh

Albermarle said:

and into a with(out)-profits pension with Equitable Life.

The performance of the opted out pension is obviously a key issue as well. 

Mine was 100% equity invested with Standard Life ( More by luck than judgement ) and has grown a lot. Not just during the time whilst the NI contributions where going in, but also since then as well. As I get nearer to retiring I have moved it into more medium risk funds though.

Very true.   I suspect if contracting out was still available today, we would need critical yield calculations and only portfolios within the expectation of hitting that critical yield would be considered suitable.  In theory, in the past, you could put it in a deposit fund and that would not have given you the required growth.   However, back then, the vast majority of the money was invested in 60-100% equity content.

[Deleted User]

woolly_wombat said:

dunstonh said:

The SIB carried out a review in 1996 and found that everyone that has contracted out was financially better off.  The regulator (FSA at the time) carried out a review around 2008 and found that there was a potential failure rate of around 1%.

OH was most definitely NOT better off opting out of SERPs and into a with(out)-profits pension with Equitable Life.He would have been about to claim a very substantially higher indexed-for-life state pension if he hadn't done that.

Maggie Thatcher was a canny one, aiming to minimise the cost to the state, and OH fell for the opt-out bribe hook line and sinker.

EL “With Profits” fund provided a very respectable money weighted return of 7% per annum over 25 years. I would like to see some maths behind your assertion that OH “most definitely NOT better off”.
Minimizing cost to the taxpayer is a commendable objective. It’s not a zero sum game. 

woolly_wombat

Deleted_User said:

EL “With Profits” fund provided a very respectable money weighted return of 7% per annum over 25 years.

I stayed with EL until the bitter end and did OK.

OH did not do OK because, with far more at stake and insolvency a distinct possibility,  he decided to get out when the smelly stuff hit the fan and effectively suffered a deduction of 27.5%.

He had also lost out on what would have been a generous SERPs pension.

For the maths see:

https://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/2726818/Fresh-pensions-blow-hits-a-million-savers.html

Quote:
'EQUITABLE LIFE cut a sixth off the value of nearly a million people's pension funds this week in what it described as "urgent action to stop unacceptable haemorrhaging of the society's assets".

The beleaguered insurer also imposed complex penalties on people who encash their policies which mean that anyone surrendering a pension plan now will lose more than a quarter of the fund they could have expected before the shock announcement.

Pension plan holders who hang on will lose a fifth.Total deductions on early surrender of pension plans now amount to 27.5pc. That is comprised of the 16pc reduction in policy value as at December 31, 2000; 4pc for the board's announcement that there will be no growth added to policies during the first half of this year, after the annual bonus had been set at 8pc; finally, the 7.5pc "market value adjustment" or exit penalty.'

Albermarle

So it is not the general idea of SERPS opt out as such that caused the problem, it was a problem with EQ L and personal circumstances .
Not that it makes you/OH feel any better, but the SERPS opt out idea worked well for some and for most it was at worst a neutral outcome.

woolly_wombat

Albermarle said:

So it is not the general idea of SERPS opt out as such that caused the problem, it was a problem with EQ L and personal circumstances .
Not that it makes you/OH feel any better, but the SERPS opt out idea worked well for some and for most it was at worst a neutral outcome.

It was the combination of SERPs opt out and payment of NICs reduction into ELAS without-profits.

[Deleted User]

woolly_wombat said:

Albermarle said:

So it is not the general idea of SERPS opt out as such that caused the problem, it was a problem with EQ L and personal circumstances .
Not that it makes you/OH feel any better, but the SERPS opt out idea worked well for some and for most it was at worst a neutral outcome.

It was the combination of SERPs opt out and payment of NICs reduction into ELAS without-profits.

In summary, someone opted to take risk for possibility of higher return and then made an investment error.  Totally Thatcher’s fault.

zagfles

For someone like the OP aged 49 and been working since 17, if they had stayed in SERPS they'd likely have a full new state pension or pretty close to it. Possibly above depending on earnings. That means all future years contributions are money down the drain, no extra state pension accrual whatsoever for the next 15-20 years of their working life.

If they'd opted out of SERPS from the start, they'd likely have just the old basic pension level ie about 75% of the full new state pension. But the next 15-20 years of contributions will accrue more state pension and likely to bring that up to 100%.

So likelyhood is that the state pension would be the same or similar regardless of opting out, and so anything that the contracted out pension is worth is pure profit over staying in SERPS.

woolly_wombat

Deleted_User said:

In summary, someone opted to take risk for possibility of higher return and then made an investment error.  Totally Thatcher’s fault.

Or more accurately, as a leading UK pensions expert put it:

'The long-awaited Parliamentary Ombudsman report into the Equitable Life collapse was a damning indictment of our financial regulators and put blame squarely on the Financial Services Authority (FSA), which was acting on behalf of the Treasury, on the Government Actuary’s Department (GAD) and on the Department for Trade and Industry (DTI). She has recommended that the Government should apologise to the victims for its regulatory failures and set up a fund to pay compensation to some of the victims. Her report highlights a catalogue of failures at the highest level by regulators and their advisers who should have known far better. , this will be yet another example of our so-called “light touch” regulatory system being more like “hands off” or “eyes shut”.'

https://www.rosaltmann.com/ombudsman_equitablelife_victims/