Contact back into SERPS... or not?

full-time-mum

I contracted out of SERPS when this was originally allowed and have been contracted out ever since with Standard Life. I haven't worked for 12 years as I am a full-time-mum so haven't paid anything in since 1996.

I have just received a letter from standard life telling me that, as I haven't paid in for the last 2 years, they will contract me back into the government scheme unless I let them know otherwise. It is their advice to contract back in.

Are they right?

dunstonh

It doesnt matter. Unless you are employed you are only contracted out on paper. There is nothing happening financially. In which case you may as well contract in as it saves paperwork.

You are lucky with your timing. Contracting out was at its best between 1988 and 1996. Labour started reducing rebates when it got into power although next year they are increasing them again.

It may be worth looking at your pension investment choices though as older pensions (pre 2001) often have limited or obsolete investment funds used which can be improved upon. Often at no cost or even lower cost than leaving it where it is.

EdInvestor

At least howveer she will be paying low charges on the SL pension, as it reduced them across the board.

Well worth looking at up to date fund choices though, especially if in the With profits fund, exit from which would be desirable.

full-time-mum

dunstonh wrote: »

It doesnt matter. Unless you are employed you are only contracted out on paper. There is nothing happening financially. In which case you may as well contract in as it saves paperwork.

You are lucky with your timing. Contracting out was at its best between 1988 and 1996. Labour started reducing rebates when it got into power although next year they are increasing them again.

Thanks, its nice to be in the lucky category for once!

dunstonh wrote: »

It may be worth looking at your pension investment choices though as older pensions (pre 2001) often have limited or obsolete investment funds used which can be improved upon. Often at no cost or even lower cost than leaving it where it is.

Not quite sure what you mean? Are we talking about the contracted out contributions that have previusly been paid into this SL policy?
I've 2 other personal pensions with exceedingly small funds in them (one with Scottish Widows and one with Equitable Life :eek:) Given that I am no longer in a position to put anything in them, I do sometimes wonder whether it was worth contributing all those years ago. Especially given that the IFA we are in dispute with over our endowment is using the fact that I had a pension plan to argue that I obviously understood and was prepared to take a risk, but that is another epic story altogether.

Will just go with the status quo, I think, and let them contract me back in by default.

dunstonh

Not quite sure what you mean? Are we talking about the contracted out contributions that have previusly been paid into this SL policy?

The money you built up whilst you were contracted out and what is now the fund value.

Given that I am no longer in a position to put anything in them, I do sometimes wonder whether it was worth contributing all those years ago.

Are you married or have a partner? They could fund some provision in your name. Retirement provision should always be planned jointly and not be top heavy with one partner.

Will just go with the status quo, I think, and let them contract me back in by default.

If you had the fund value in your hand as cash would you let it go? Remember this money is going to be yours later. The more it grows, the more you get. Ignore it and you get less.

mad

Have had the same letter from SL. I have considered the pros and cons of contracting back in as SL have sent letters the past few years advising to contract back in. I have not because I like the idea that I could take the pension earlier and a lump sum also you never know were future Govt policy will go. Aanyway I am 45 now and the advice seems to be contract back in when you get to my age?

I am working and therfore contributing and have a reasonable pot with them in addition a seperate PP which is reasonable and would like to retire when I am 60. My question is (And Dunstohn may have answered it) will all the pot built up so far go back to the Govt?

EdInvestor

mad wrote: »

will all the pot built up so far go back to the Govt?

No, only future contributions.

It tells tou a lot about the standard of communication at insurance companies that so many people need to ask this question.

Of course the reason they don't make it clear is that many of them would prefer you forgot all about your existing pension, so they could continue to keep it in crappy obsolete old funds such as with profits and extract high charges.

Don't let them get away with it, keep watching the performance of your pension and switch to better funds if it isn't doing well..

mad

EdInvestor wrote: »

It tells tou a lot about the standard of communication at insurance companies that so many people need to ask this question.

Thanks for that, you are right an obvious question which I had to ask. As you say the lack of comms is dire. I have got the contracted out stuff in reasonable funds and moved from the 'zombie' type stuff so my contracted out pension is reasonably invested. Now that I know that and given that I still may want to retire at 60 is it still worth contracting back in?

God! How boring am I, thinking about pensions at this point on a Friday night.. I have got a life yer know

Anyway any further help / comments appreciated

sue-dai

hi there
i have paid 60 pounds a month give or take a few pound into a local government pension through my employer(local council) now at 42 i have to finish work ,due to health reasons i can no longer do my job description,is there any way i can claim any of the money back that i have paid, because if they freeze the pension by the time i reach pension age i will be lucky to have a pound a week

thanks for any advise you could give me

sue

jamesd

The pension will increase in value with inflation. You can't claim the pension money back.

Some pensions have the possibility to take the pension early if retiring due to ill health, though often at huge reductions in the monthly pension payment because there have been so few contributions with so little time to grow and so much longer to live after retiring.

Ask the pension scheme managers about these things. But don't expect to get much pension at 42 even if you're able to take it so early.

Other replies to sue-dai are here

jamesd

full-time-mum, the existing money in your pension plans is invested somewhere. The choices of investments available in pensions today is better than it was in old pensions and the charges are often lower. So it's worth looking at the investments inside the pensions and managing them. It might be worth combining all of the pensions into one as well, depends on what they are.

When retired each person gets a personal tax allowance and that's expected to be about 10,000 for people over 65. Since that's tax free money it makes sense to try to get a fairly even split of pensions between partners. Since you can make contributions of up to 2808 a year and still get basic rate tax relief added even if not earning anything it's often a good idea for a partner to make contributions of up to that amount for a non-working partner with low pension provision.

mad, since you want to retire at 60 and won't be able to get contracted-in pension until state retirement age (66 or older for you) you may still want to remain contracted out so that extra contributions increase the amount of money that you can take early. The difference in contributions between being contracted in and contracted out isn't cut dramatically until you're in the early fifties so it's not a huge loss to stay contracted out in order to get the money early. Just be sure that you do manage your pension investments rather than ignoring them, since you do need to get a decent investment return.