SERPS & company pension.

Linton

The_Economist said:

Brynsam said:

The_Economist said:

Back in the day when SERPS was still running I was opted out by the firm that I worked for.
It was a final salary pension.
My question is did they have the right to opt me out with out my permission...

Thanks in advance........

More accurately, you entered into employment which was contracted out of SERPS and your contract was required to specify this. You would also have been informed in your pension scheme booklet that membership of the scheme meant you were contracted out of SERPS.

By joining the pension scheme you implicitly gave permission; and by signing your contract you gave consent - either of those would have done, so you gave your permission.

The_Economist said:

Hi Dazed_and C0nfused,
the question I posted is one that I've been looking for an answer too.
 You ask what has prompted my question, respectfully is this relevant..

I suspect what Dazed was driving at (and which is why most people ask this question, which crops up regularly on this board) was whether you believed this meant you had been disadvantaged in some way (you haven't) or whether it impacts on your state pension (it does, but you're still better off than if you'd declined to join your company's pension scheme).

No I didn't enter employment & the final salary pension knowingly it was contracted out of SERPS & my contract didn't specify this at the time...
I joined the companies final salary pension then they decided to go down the SERPS route a few years later of my employment without asking me if I wanted to or not...
I didn't sign anything to agree to be contracted out....

This seems surprising.  The whole objective of SERPs was to provide the masses with something like a DB pension when such benefits were not available to most employees.  People would not want to pay extra for the state DB pension if they already had one from their employer.  Also the employer NI was higher for contracted in employees so why should employers want to pay for an extra state pension for their staff when they were already providing one themselves?

Contracting out would have been specified in the scheme rules.  Would you really have opted out of your DB pension if you had understood the implications? 
 

hyubh

The_Economist said:

Back in the day when SERPS was still running I was opted out by the firm that I worked for.
It was a final salary pension.
My question is did they have the right to opt me out with out my permission...

Back in the day when SERPS was initially running, being eligible for membership of a final salary scheme was typically not something distinct from being a member of a final salary scheme. A general right to opt out of an occupational scheme and therefore opt into SERPS only arose in 1988, 10 years into SERPS' existence. Even then though, you couldn't have it both ways, being a member of a contracted-out pension scheme while being personally contracted in. How many cherries on top do you actually want? ;-)

dunstonh

No I didn't enter employment & the final salary pension knowingly it was contracted out of SERPS & my contract didn't specify this at the time...

It would have been in the pension scheme booklet.

I didn't sign anything to agree to be contracted out....

You didn't have a choice unless you opted out of the scheme (which would have been completely folly).

Tealblue

The_Economist said:

Brynsam said:

The_Economist said:

Back in the day when SERPS was still running I was opted out by the firm that I worked for.
It was a final salary pension.
My question is did they have the right to opt me out with out my permission...

Thanks in advance........

More accurately, you entered into employment which was contracted out of SERPS and your contract was required to specify this. You would also have been informed in your pension scheme booklet that membership of the scheme meant you were contracted out of SERPS.

By joining the pension scheme you implicitly gave permission; and by signing your contract you gave consent - either of those would have done, so you gave your permission.

The_Economist said:

Hi Dazed_and C0nfused,
the question I posted is one that I've been looking for an answer too.
 You ask what has prompted my question, respectfully is this relevant..

I suspect what Dazed was driving at (and which is why most people ask this question, which crops up regularly on this board) was whether you believed this meant you had been disadvantaged in some way (you haven't) or whether it impacts on your state pension (it does, but you're still better off than if you'd declined to join your company's pension scheme).

No I didn't enter employment & the final salary pension knowingly it was contracted out of SERPS & my contract didn't specify this at the time...
I joined the companies final salary pension then they decided to go down the SERPS route a few years later of my employment without asking me if I wanted to or not...
I didn't sign anything to agree to be contracted out....

Some people will make a fuss about anything, even when the action they are complaining about was very much to their benefit! If you didn't want to be contracted out (and thus pay lower NI, increasing our take home pay) you could have opted out of your final salary scheme, losing the benefit of a very substantial employer contribution just to get a small SERPS pension. Happily your failure to do so means you are now going to have a much more comfortable retirement in due course.

Dazed_and_C0nfused

Tealblue said:

The_Economist said:

Brynsam said:

The_Economist said:

Back in the day when SERPS was still running I was opted out by the firm that I worked for.
It was a final salary pension.
My question is did they have the right to opt me out with out my permission...

Thanks in advance........

More accurately, you entered into employment which was contracted out of SERPS and your contract was required to specify this. You would also have been informed in your pension scheme booklet that membership of the scheme meant you were contracted out of SERPS.

By joining the pension scheme you implicitly gave permission; and by signing your contract you gave consent - either of those would have done, so you gave your permission.

The_Economist said:

Hi Dazed_and C0nfused,
the question I posted is one that I've been looking for an answer too.
 You ask what has prompted my question, respectfully is this relevant..

I suspect what Dazed was driving at (and which is why most people ask this question, which crops up regularly on this board) was whether you believed this meant you had been disadvantaged in some way (you haven't) or whether it impacts on your state pension (it does, but you're still better off than if you'd declined to join your company's pension scheme).

No I didn't enter employment & the final salary pension knowingly it was contracted out of SERPS & my contract didn't specify this at the time...
I joined the companies final salary pension then they decided to go down the SERPS route a few years later of my employment without asking me if I wanted to or not...
I didn't sign anything to agree to be contracted out....

Some people will make a fuss about anything, even when the action they are complaining about was very much to their benefit! If you didn't want to be contracted out (and thus pay lower NI, increasing our take home pay) you could have opted out of your final salary scheme, losing the benefit of a very substantial employer contribution just to get a small SERPS pension. Happily your failure to do so means you are now going to have a much more comfortable retirement in due course.

Very well said

Silvertabby

Dazed_and_C0nfused said:

Tealblue said:

The_Economist said:

Brynsam said:

The_Economist said:

Back in the day when SERPS was still running I was opted out by the firm that I worked for.
It was a final salary pension.
My question is did they have the right to opt me out with out my permission...

Thanks in advance........

More accurately, you entered into employment which was contracted out of SERPS and your contract was required to specify this. You would also have been informed in your pension scheme booklet that membership of the scheme meant you were contracted out of SERPS.

By joining the pension scheme you implicitly gave permission; and by signing your contract you gave consent - either of those would have done, so you gave your permission.

The_Economist said:

Hi Dazed_and C0nfused,
the question I posted is one that I've been looking for an answer too.
 You ask what has prompted my question, respectfully is this relevant..

I suspect what Dazed was driving at (and which is why most people ask this question, which crops up regularly on this board) was whether you believed this meant you had been disadvantaged in some way (you haven't) or whether it impacts on your state pension (it does, but you're still better off than if you'd declined to join your company's pension scheme).

No I didn't enter employment & the final salary pension knowingly it was contracted out of SERPS & my contract didn't specify this at the time...
I joined the companies final salary pension then they decided to go down the SERPS route a few years later of my employment without asking me if I wanted to or not...
I didn't sign anything to agree to be contracted out....

Some people will make a fuss about anything, even when the action they are complaining about was very much to their benefit! If you didn't want to be contracted out (and thus pay lower NI, increasing our take home pay) you could have opted out of your final salary scheme, losing the benefit of a very substantial employer contribution just to get a small SERPS pension. Happily your failure to do so means you are now going to have a much more comfortable retirement in due course.

Very well said

Indeed.  I was contracted out for the maximum possible 38 years - and am chuffed to NAAFI breaks with the result.

The_Economist

NottinghamKnight said:

The_Economist said:

Brynsam said:

The_Economist said:

Back in the day when SERPS was still running I was opted out by the firm that I worked for.
It was a final salary pension.
My question is did they have the right to opt me out with out my permission...

Thanks in advance........

More accurately, you entered into employment which was contracted out of SERPS and your contract was required to specify this. You would also have been informed in your pension scheme booklet that membership of the scheme meant you were contracted out of SERPS.

By joining the pension scheme you implicitly gave permission; and by signing your contract you gave consent - either of those would have done, so you gave your permission.

The_Economist said:

Hi Dazed_and C0nfused,
the question I posted is one that I've been looking for an answer too.
 You ask what has prompted my question, respectfully is this relevant..

I suspect what Dazed was driving at (and which is why most people ask this question, which crops up regularly on this board) was whether you believed this meant you had been disadvantaged in some way (you haven't) or whether it impacts on your state pension (it does, but you're still better off than if you'd declined to join your company's pension scheme).

No I didn't enter employment & the final salary pension knowingly it was contracted out of SERPS & my contract didn't specify this at the time...
I joined the companies final salary pension then they decided to go down the SERPS route a few years later of my employment without asking me if I wanted to or not...
I didn't sign anything to agree to be contracted out....

It would be very unusual to be a member of a db scheme and not contracted out, joining the db scheme will have meant you signed up to be contracted out, and this is a benefit for most if not all people, more so for many in transitional arrangements who have the opportunity to earn the same state pension as those who have paid the additional NI.

Maybe I'm a little confused on the replys that people have posted (& posted replys from all is very much appreciated).

Questions on your reply .
You say " it would be very unusual to be a member of a db scheme and not contracted out".

1) So trying to remember the history of SERPS why would they not do it straight away.
(will have to go through paper work to find out when they decided to contract us out).

2) What is the time line that any company could've contract its members out.

3) ("and this is a benefit for most if not all people, more so for many in transitional arrangements who have the opportunity to earn the same state pension as those who have paid the additional NI.") 
Sorry not quiet sure what this means.....

I stand corrected but my understanding is SERPS was introduced to pay a portion or reclaim a portion of ones NI contributions to a private pension or a company pension, idea being to invest to equal or better the second state pension....

dunstonh

1) So trying to remember the history of SERPS why would they not do it straight away.
(will have to go through paper work to find out when they decided to contract us out).

Maybe the original scheme started before it was possible and they wanted to move to it later on.   Maybe they had people joining them that had contracted out benefits from elsewhere and wanted to transfer their pension to their new scheme.     A contracted in DB scheme could not accept a transfer from a contracted out pension scheme.  Changes often come around due to requests.   After A Day (2006) a lot of schemes that could change but didn't were "encouraged" to by the pension holders badgering the administrators and putting a case ot the trustees.

Also, the rules changed over the years.  Maybe they didn't like the original rules but found the revised rules acceptable.  The ability to contract out using occupational money purchase schemes was 1978 IIRC and that would have created more focus on contracting out. 

Maybe the employer decided it wanted to pay lower NI.

In reality, we cant say.  We can only guess.

2) What is the time line that any company could've contract its members out.

In return for the NI savings provided by the Government, a contracted out "salary-related" scheme had to provide a certain minimum level of benefit.

• Between 6 April 1997 and 5 April 2016: it had to pass the ‘reference scheme test’.
• Between 6 April 1978 and 5 April 1997: it had to, amongst other standards, provide GMP (a guaranteed minimum pension).
• Between 6 April 1961 and 5 April 1975: it had to, amongst other standards, provide an equivalent pension benefit.

3) ("and this is a benefit for most if not all people, more so for many in transitional arrangements who have the opportunity to earn the same state pension as those who have paid the additional NI.") 
Sorry not quiet sure what this means.....

I read it as indicating that many people who contracted out (either by paying less NI and having a DB scheme or by contracting out into an appropriate personal pension) have been able to see their contracted out years drop off and be replaced by either contracted in years or post 2015 new state pension years.   Therefore getting an increased occupational/personal pension payment AND getting a higher state pension entitlement.    I may be reading it wrong but I think that is more or less what was being said.

I stand corrected but my understanding is SERPS was introduced to pay a portion or reclaim a portion of ones NI contributions to a private pension or a company pension, idea being to invest to equal or better the second state pension....

What you describe there is contracting out using money purchase pensions.    However, contracting out for final salary schemes was different.   Both called contracting out but different in approach.   

With Money purchase schemes, you paid the same NI and were paid a rebate to your chosen money purchase scheme. Either a COMP/COMP or GPPP if occupational (ignoring hybrids for now) or an APPP if personal.

With Final Salary schemes, you and your employer paid a lower rate of NI and there was no rebate.   Instead, the Final Salary scheme would pay an extra amount to make it up for it.  

jamesd

The_Economist said:
my understanding is SERPS was introduced to pay a portion or reclaim a portion of ones NI contributions to a private pension or a company pension, idea being to invest to equal or better the second state pension....

The State Earnings-Related Pension Scheme (SERPS) was introduced on 6 April 1978 to provide an earnings-related Additional State Pension on top of the Basic State Pension and paid as part of it. Most current state pensioners get some. From 5 April 2002 it was replaced by the State Second Pension (S2P) which worked similarly but paid lower earners more and added a little earnings-related pension to those who were contracted out of it, cutting accrual rates in the middle income range to pay for the higher accrual rate in the lower part.

There was no payment cap and today a person with maximum accrual over a long work life could end up with more than £300 a week when combined with the BSP. Even low earners could get over £190 a week.

Employers from the start could contract out their schemes - and everyone in them - provided they agreed to replace the benefit with a guaranteed pension. Sometimes the employee paid less NI. Overall this substituted paying as part of the state pension with paying a similar amount as part of the work pension. This way of contracting out ended in 2016.

From 1988 individuals could contract out and have a partial rebate of NI paid into a personal pension where it could be invested and eventually used to buy a  dual life inflation-linked annuity, a restriction called Protected Rights (of the government to force you to buy that type of annuity). Protected Rights were abolished on 6 April 2012 and the money normally became a personal pension pot like any other. There was at times some wondering about how good a deal this type of contracting out was. This way to contract out ended in 2012.

The 2016 pension freedoms largely removed any doubts about whether those who were contracted out were better off: yes. The new state pension introduced an accrual cap of then £155. Those who'd worked contracted out for many years would find themselves accruing nothing more because their earnings-related part took their state pension over the cap, with those contracted out still below it and able to accrue more, while still keeping all of the work or personal pension benefits of having been contracted out. As a result those who were contracted out gained the new ability to further increase their state pension with years from 2016 on, instead of already having reached the 30 year BSP accrual limit.

There can be rare exceptions but in general the regular posters here know that answers to the effect of "yes, you're better off and if you give enough details we can explain just how" are correct.

Silvertabby

Going forward, we won't have this problem.  Those under a certain age will have enough time between ceasing to be contracted out (2016 at the latest) and retirement to be able to accrue the full single tier pension on top of their (partly) contracted out occupational pension.

I blame the red top tabloids.  When the single tier pension was first announced, they made a big drama about how 'everyone' would get the new 'basic' pension of £155 per week (or whatever it was when the White paper was published).  People who should have known better then didn't bother reading all the facts, and happily assumed that they would get 2 big bites of the same cherry.  Then, when reality hit, they claimed that they had been robbed of their 'entitlements'.

One of the more common complaints was that if they had been told of the future pension changes when they first joined their occupational scheme, they would/should have been given the choice of not contracting out of SERPS/SP2, thereby accruing the full State pension as well as their occupational pension.

I assume this was based on the very simplistic view that all they had to do was pay the full rate of employee NI and all would have been well.  Nothing could be further from the truth.  When DB number crunchers set the employee and employer contribution rates, plus the accrual rate which determined the amount of pension to be paid (different schemes have different accrual rates, even in the public sector) they took into account all the monies coming into the scheme.  Including the employer's NI rebate, which was 3 times the amount of the employee rebate.  Had it been possible to contract in, but still be a member of an occupational DB scheme, then the number crunchers would have had to compensate for the loss of the employer's NI rebate by either increasing the contribution levels or reducing the accrual level.  Or both.  Be careful what you wish for!

Finally, in the case of public sector workers, (and unlike some private schemes) the employee's NI rebate went into our pockets.