Serps and company pension

Liza44

I was advised to opt out of serps and put it into my final salary pension. Now I’m being told that my pension that I’m being paid will be reduced and then topped up by the serps contribution. Basically my serps is now paying a proportion of my final salary pension so I’m gaining no benefit from opting out of serps. Can someone advise me if this is correct as I can’t understand why I would have opted out of serps if it was only going to form part of the final salary pension that I would have received regardless of whether the serps pamount had been paid into it. 

Thank you 

Linton

Generally contracting out of SERPs was a requirement of being a member of a final salary pension scheme since it also reduced the employer's NI.  The idea was that since the whole purpose of SERPS was to provide a salary linked pension for everyone at a time when employer's pensions were not available for many people there seemed no point in people who already had a salary linked pension paying extra to join the government one.

Exactly what happened when you were contracted out changed several times.

xylophone

I was advised to opt out of serps and put it into my final salary pension.

I don't quite follow - if you were a member of a Pension Scheme that was contracted out of SERPS you wouldn't have had any choice.

https://www.gov.uk/government/publications/state-pension-fact-sheets/contracting-out-and-why-we-may-have-included-a-contracted-out-pension-equivalent-cope-amount-when-you-used-the-online-service#:~:text=What is contracting out?,of the basic State Pension.

I am assuming that you are about to take your state pension?

What exactly does your State Pension Forecast say?

https://www.royallondon.com/media/good-with-your-money-guides/the-new-state-pension-your-questions-answered/

p00hsticks

Liza44 said:

Now I’m being told that my pension that I’m being paid will be reduced and then topped up by the serps contribution.

Are you referring to your state pension here ? Assuming you are;

You don't give details of how old you are, the value of the pension you were expecting, the 'reduction' and the value of the company pension, but I think it would be uncommon for the 'reduction' in state pension to be as much as the benefit from the company pension, especially if it s a defined benefit ('final salary') pension.

Under the pre-2016 rules, your 'contracted out' NI contributions - which as Linton points out would have been lower than if you had been contracted in - contributed to the basic state pension amount (currently £134.25 a week), but you did not accumulate any additional state pension (SERPS or S2P) to be added on top.

When the new State Pension was introduced in 2016, two calculations would have been done for you, under both the old and the new rules, and the higher of the two figures used as your 'starting amount' as at 6/4/2016. So at the very least you will get the amount you would have expected under the old rules.

However, those of us who were contracted out but have a few post-2016 years to reach state retirement age are generally in an enviable position following the introduction of the new State Pension in 2016. If we have accumulated enough NI years, then not only will we get at least the old basic pension amount we were expecting for most of our lives and the private pension we have been contributing to, but also the chance under the new rules to increase that basic state pension amount up to the new higher amount of £175.20 a week 

jamesd

In most final salary schemes everyone who joined was opted out of SERPS because the whole scheme was. I don't know of any exceptions. The opting out got the members lower NI or an earnings-related payment as part of the total work pension. So the opted out SERPS money always has been intended to be part of your works pension.

I assume that you're taking the works pension before the scheme normal pension age. SERPS and non-SERPS money can be affected differently by this so telling you the numbers for each part can be sensible.

dunstonh

I was advised to opt out of serps and put it into my final salary pension. 

That is not possible. A workplace pension was either contracted out or contracted in. You didn't get a choice. Therefore no-one could give you advice to do that.

Basically my serps is now paying a proportion of my final salary pension so I’m gaining no benefit from opting out of serps.What about all those years of paying lower national insurance?
What about the scheme paying you an increase rather than the state?

Can someone advise me if this is correct as I can’t understand why I would have opted out of serps if it was only going to form part of the final salary pension that I would have received regardless of whether the serps pamount had been paid into it. You had no choice.  

garmeg

Are you talking about your final salary pension going down because you have reached state pension age?

This is a state pension clawback ...

https://www.theguardian.com/money/2020/aug/30/pressure-mounts-on-hsbc-to-axe-discriminatory-staff-pension-cuts