SERPS and Contracting out

Silvertabby

worn_out said:

Silvertabby said:

worn_out said:

Just an added comment on this...when I moved jobs to local govt in 1988 it was compulsory to opt out of serps..no choice...what wasn't said at the time was that upon retirement the scheme would only ever pay a max of 3% on this element, regardless of what CPI was.. As the years have gone by this is costing me £5.50pw and will ultimately cost me several £000 , (assuming I don't pop my clogs early). The DWP say the max 3% was to save company schemes from being burdoned with higher inflation pay outs...I mean to say it's not as if it would break the bank, these amounts (in my case anyway) are around £40pw...

Looking at your earlier posts, you reached SPA  before April 2016.   

The difference between 3% and CPI has always been added to your State pension, so you haven't missed out.

When I get my annual state pension statement, my OAP gets CPI and my serps  gets increased by the  full cpi...rate.  My last DWP statement showed my post '88 at £49.23 but my local Govt pension says it is only paying me £44.36.

Obviously I don't get both. But because I have some pre 1988 GMP which is a lot higher than the serps equivalent , and the way the system works is they add the post 88 and pre 88 together and if that is higher than the serps total figure you don't get any additional pension from the DWP.  Had I not been forced to contract out of serps by my local govt pension scheme I would be getting my post '88 GMP at £49.23 , and not the £44.36 .. That's what I'm saying...albeit not as clear as it could be....

That makes sense - I don't think you mentioned earlier that you also have substantial pre 1988 GMP/contracted out benefits.  The wonderful book of GMP.....War & Peace was a little light reading in comparison.

You may think that you are missing out, but you need to look at the overall picture, especially your belief that you would have been better off by not contracting out of SERPs when you joined the LGPS.

Taking the LGPS first, joining but not contracting out of SERPS has never been an option.  You either joined the scheme or you didn't.  Had you opted out of the LGPS you would have paid higher rate of NI in return for SERPS/possibly a few £s more on your GMP at SPA, but you wouldn't have been entitled to any LGPS benefits.  Which scenario would be better?

Similarly, you would have been contracted out of SERPS in respect of your previous again.  Again, you would have paid reduced rate NI (from April 1978 onwards) and have accrued a pension well in excess of the SERPs benefits that you gave up - by not paying for them).

Your case may be a little more complicated than some, but it really is swings and roundabouts.  If it helps, compare all those years of paying reduced NI against your perceived 'loss' and I think you'll feel much better!  

worn_out

dunstonh said:

Just an added comment on this...when I moved jobs to local govt in 1988 it was compulsory to opt out of serps..no choice...what wasn't said at the time was that upon retirement the scheme would only ever pay a max of 3% on this element, regardless of what CPI was.

Defined benefit schemes were contracted out.   That was the standard.  Hence no choice.

As the years have gone by this is costing me £5.50pw and will ultimately cost me several £000 , (assuming I don't pop my clogs early). 

But you shouldn't look it like that as you would need to factor in that you paid a pittance in during your working years, and you also paid lower NI and received a bridging pension.

you are looking at one small negative of the arrangement but you are massively up in the other areas.

That's an interesting reply..but bear with me a bit...back in the day my employer didn't have a pension scheme but the state had a graduated pensions scheme, the forerunner to serps. When I moved jobs the company did have a pension scheme, and I paid 6% of my salary into it , as did my employer. I also paid NI contribs which at the time included an element for the new 'earnings related' state pension..I'm not sure how much my NI went down when I contracted out but my employer paid less too on the proviso they delivered the GMP. .

The 2 elements are not the same albeit the end result for serps was exactly the same in terms of what was ultimately paid out. The Co.Pension scheme was a totally different matter to SERPS.  Wasn't it ? I'm pretty sure there was no seperate investment fund for the GMP, it was a notional amount included in the overall pension pot and the DWP kept a record of it year by year.  Come retirement and i'm told what my pension is..the DWP say yes but, some of that is the GMP, what you would have got with serps..it wasn't more, and couldn't be less..My first pension statement showed the DWP had kept a record of what my serps would have been had I stayed in..for every year up to 65yo.  It was never going to give better returns than the state serps scheme. As for my company pension, I paid seperately for that. Now in retirement I see that serps is still there, going up by CPI but the notional serps element in my company pension  gets max 3%. . The DWP claimed 'better returns' potentially..that is untrue..and the pension fund I paid for on top of my NI

xylophone

See
https://forums.moneysavingexpert.com/discussion/comment/80126301/#Comment_80126301

Silvertabby

So, you have substantial DB pension rights but you believe you have been hard done by because you think you are being diddled out of £5 per week?

£5 apart you are, trust me, a winner in the world of pensions.  You may have paid 6% of your salary in notional pension contributions, but that alone would be miles short of your eventual pension.

As for the NI rebate, that was way more than most people think.  I obviously can't say how much you saved when you first became contracted out, but I can say that in March  2016  the NI rebates for those on the then average salary of £25K were £25 per month for the employee and £75 per month for the employer.  

worn_out

xylophone said:

See
https://forums.moneysavingexpert.com/discussion/comment/80126301/#Comment_80126301

Thanks...yes that's what happened to me , my pre88 gmp got 8.5% so was significantly higher than the NICO pre 88 figure, the post 88 figures were identical.  I 'get' that the combined total of the 2 have to be less to qualify for ASP..and mine aren't. . However had I not contracted out when changing jobs, there wouldn't have been a 2nd element, it would have stood alone as I would have paid into serps from 1988-1997. ..and that would be paying £5pw more than I'm getting... I'm obv not suffering from £5pw, it's just the principle of it because I had no choice but  to opt out in 1988..that's all..

Silvertabby

worn_out said:

xylophone said:

See
https://forums.moneysavingexpert.com/discussion/comment/80126301/#Comment_80126301

Thanks...yes that's what happened to me , my pre88 gmp got 8.5% so was significantly higher than the NICO pre 88 figure, the post 88 figures were identical.  I 'get' that the combined total of the 2 have to be less to qualify for ASP..and mine aren't. . However had I not contracted out when changing jobs, there wouldn't have been a 2nd element, it would have stood alone as I would have paid into serps from 1988-1997. ..and that would be paying £5pw more than I'm getting... I'm obv not suffering from £5pw, it's just the principle of it because I had no choice but  to opt out in 1988..that's all..

But - if you hadn't joined the LGPS you would have paid substantially more NI and wouldn't have accrued any LGPS benefits.  Are you really saying you would have forfeited these benefits for another £5 per week on your State pension?  

I appreciate that it's good to have principles, but sometimes they blind you from seeing the overall picture.

I have a friend in a similar situation to me - retired at 60, SPA at 66, so enough time to pay the 4 years of voluntary Class 3 NIs we needed to take us up to the full nSP.  I showed her my figures, and stressed what a good deal it was, but she was adamant that she wasn't going to give the Government a penny more than she had to.  On principle.

Marcon

worn_out said:

xylophone said:

See
https://forums.moneysavingexpert.com/discussion/comment/80126301/#Comment_80126301

Thanks...yes that's what happened to me , my pre88 gmp got 8.5% so was significantly higher than the NICO pre 88 figure, the post 88 figures were identical.  I 'get' that the combined total of the 2 have to be less to qualify for ASP..and mine aren't. . However had I not contracted out when changing jobs, there wouldn't have been a 2nd element, it would have stood alone as I would have paid into serps from 1988-1997. ..and that would be paying £5pw more than I'm getting... I'm obv not suffering from £5pw, it's just the principle of it because I had no choice but  to opt out in 1988..that's all..

You did have a choice in 1988. You could have opted out of the pension scheme. By choosing to remain a member, you accepted that you would be contracted out, because those were the rules of your scheme and virtually all other DB schemes at the time.

hyubh

worn_out said:

xylophone said:

See
https://forums.moneysavingexpert.com/discussion/comment/80126301/#Comment_80126301

Thanks...yes that's what happened to me , my pre88 gmp got 8.5% so was significantly higher than the NICO pre 88 figure, the post 88 figures were identical.  I 'get' that the combined total of the 2 have to be less to qualify for ASP..and mine aren't. . However had I not contracted out when changing jobs, there wouldn't have been a 2nd element, it would have stood alone as I would have paid into serps from 1988-1997. ..and that would be paying £5pw more than I'm getting... I'm obv not suffering from £5pw, it's just the principle of it because I had no choice but  to opt out in 1988..that's all..

You're missing a more fundamental principle: SERPS wasn't for you, a member of a decent occupational scheme. Rather, it was for employees who didn't enjoy that benefit, giving them a basic salary related pension from the state instead, with the difference between class A and class D NICs representing the SERPS contribution rate. The fact that before the government forced a 'right' of opting out in 1988, being eligible for an occupational scheme was frequently correlated with membership being a condition of employment, is neither here nor there.

A modern analogy is a contemporary member of the LGPS complaining that they are losing out from not being able to contribute to a NEST pension like their shopworker friend...

Marcon

hyubh said:

worn_out said:

xylophone said:

See
https://forums.moneysavingexpert.com/discussion/comment/80126301/#Comment_80126301

Thanks...yes that's what happened to me , my pre88 gmp got 8.5% so was significantly higher than the NICO pre 88 figure, the post 88 figures were identical.  I 'get' that the combined total of the 2 have to be less to qualify for ASP..and mine aren't. . However had I not contracted out when changing jobs, there wouldn't have been a 2nd element, it would have stood alone as I would have paid into serps from 1988-1997. ..and that would be paying £5pw more than I'm getting... I'm obv not suffering from £5pw, it's just the principle of it because I had no choice but  to opt out in 1988..that's all..

You're missing a more fundamental principle: SERPS wasn't for you, a member of a decent occupational scheme. Rather, it was for employees who didn't enjoy that benefit, giving them a basic salary related pension from the state instead, with the difference between class A and class D NICs representing the SERPS contribution rate. The fact that before the government forced a 'right' of opting out in 1988, being eligible for an occupational scheme was frequently correlated with membership being a condition of employment, is neither here nor there.

A modern analogy is a contemporary member of the LGPS complaining that they are losing out from not being able to contribute to a NEST pension like their shopworker friend...

...and if there was ever a 'right' many people would have been so much better not to have had...

worn_out

Silvertabby said:

So, you have substantial DB pension rights but you believe you have been hard done by because you think you are being diddled out of £5 per week?

£5 apart you are, trust me, a winner in the world of pensions.  You may have paid 6% of your salary in notional pension contributions, but that alone would be miles short of your eventual pension.

As for the NI rebate, that was way more than most people think.  I obviously can't say how much you saved when you first became contracted out, but I can say that in March  2016  the NI rebates for those on the then average salary of £25K were £25 per month for the employee and £75 per month for the employer.  

I think the employer NI was reduced by 3.4%, and the employee by 1.4%..