SERPS... What are the ramifications?
Discussion
Morning all,
I contracted out of SERPS back in the day. I know there was something of a scandal over how these were sold, but I don't think that was an issue for me, and I've got a £60k pension pot off the back of it which seems to be performing pretty well, so from that respect, I've got no qualms.
What I don't understand is all the other ramifications of this. If I go on to the HMRC website, it tells me that so long as I work another few years (which I will) I'll be entitled to the maximum possible pension of £168 per week, but with no mention of SERPS.
I've been trying to figure out what sort of reduced payout I'd get from the State, given that I'd contracted out of SERPS, and from what I can see, anyone retiring after the start of the 2016 tax year is no longer eligible for SERPS, and is only eligible for the New State Pension instead. Does this effectively mean that that £60k is free money I've been given by the government? My wife didn't ever contract out of SERPS, so does that mean, given that we'll both end up with the same pension payout, that all of her additional NI contributions over 20 years or so are effectively lost?
In short, should I be happy, and should my wife be threatening to blow up HMRC in frustration?
I contracted out of SERPS back in the day. I know there was something of a scandal over how these were sold, but I don't think that was an issue for me, and I've got a £60k pension pot off the back of it which seems to be performing pretty well, so from that respect, I've got no qualms.
What I don't understand is all the other ramifications of this. If I go on to the HMRC website, it tells me that so long as I work another few years (which I will) I'll be entitled to the maximum possible pension of £168 per week, but with no mention of SERPS.
I've been trying to figure out what sort of reduced payout I'd get from the State, given that I'd contracted out of SERPS, and from what I can see, anyone retiring after the start of the 2016 tax year is no longer eligible for SERPS, and is only eligible for the New State Pension instead. Does this effectively mean that that £60k is free money I've been given by the government? My wife didn't ever contract out of SERPS, so does that mean, given that we'll both end up with the same pension payout, that all of her additional NI contributions over 20 years or so are effectively lost?
In short, should I be happy, and should my wife be threatening to blow up HMRC in frustration?
Is the COPE amount taken off the £168 ? or will you get the £168 from the Government and the COPE amount (estimate)from the Pension Provider ?
And the other question with respect to the COPE amount do you have to wait until your state retirement age to draw on it, or is is treated as a private pension and you could if so desired draw down on it at 55 ?
And the other question with respect to the COPE amount do you have to wait until your state retirement age to draw on it, or is is treated as a private pension and you could if so desired draw down on it at 55 ?
OP,
What scandal? I don't recall there's been a scandal about contracting out of SERPS.
You say that you were contracted out of SERPS and then you expect to see a SERPS pension in the HMRC forecast? As you were contracted out you can't expect a SERPS benefit too.
COPE is paid In addition to the basic State pension. It comes from the pension arrangement that was used for contracting out purposes.
OP, I think that in your case you will get the current State maximum basic pension of £168.60 pw and that's it. And you'll get the COPE from your pension arrangement.
Note that many people have separate periods of employment and so they had separate periods of being contracted out and contracted in. These people will have a SERPS pension paid from the State for their contracted in periods of employment and a COPE pension paid from a personal or occupational pension arrangement tor their periods of being contracted out.
R.
What scandal? I don't recall there's been a scandal about contracting out of SERPS.
You say that you were contracted out of SERPS and then you expect to see a SERPS pension in the HMRC forecast? As you were contracted out you can't expect a SERPS benefit too.
COPE is paid In addition to the basic State pension. It comes from the pension arrangement that was used for contracting out purposes.
OP, I think that in your case you will get the current State maximum basic pension of £168.60 pw and that's it. And you'll get the COPE from your pension arrangement.
Note that many people have separate periods of employment and so they had separate periods of being contracted out and contracted in. These people will have a SERPS pension paid from the State for their contracted in periods of employment and a COPE pension paid from a personal or occupational pension arrangement tor their periods of being contracted out.
R.
Just to clarify my prior post, COPE is paid from the pension arrangement used for contracting out and it forms part of the pension paid from that source, not in addition to it. So, for example, if the COPE is say £50 per week and the pension from the arrangement is £120 per week, the total paid from the arrangement is £120 per week, not £170 per week. In this example, the minimum that the arrangement can pay is the COPE of £50 per week,
Hope that's understood!
R.
Hope that's understood!
R.
The Leaper said:
Just to clarify my prior post, COPE is paid from the pension arrangement used for contracting out and it forms part of the pension paid from that source, not in addition to it. So, for example, if the COPE is say £50 per week and the pension from the arrangement is £120 per week, the total paid from the arrangement is £120 per week, not £170 per week. In this example, the minimum that the arrangement can pay is the COPE of £50 per week,
Are you saying tha you can force the pension provider to pay the COPE amount even if the fund/pension you paid into has performed horrendously badly & there isn't enough to pay it? In other words, is the COPE amount a GMP? I'd be surprised if that were the case but you may know better.
I'm still not getting it, so I'll try putting up some more specific information.
1. I contracted out of SERPS in about '96, and stayed out until they ended it.
2. My State Pension summary says that my forecast is £168.60, the maximum available.
3. It also states that I contracted out of SERPS, so it's not like they've not realised this.
4. My NI record shows that I've had full year payments for every year bar 4 since 1986, and all of those were as a student, long before I contracted out.
Everything else I can find on the subject suggests that because I've contracted out of SERPS, my "starting amount for the new state pension" should be lower than if I'd not contracted out, but in my case it isn't. This is what is confusing me!
I am now wondering whether the qualification for the full state pension is based not only on the number of years you've paid NI, but also the amount you've paid?
Could it be that because I've paid a bucket-load of NI over the years, I've paid enough to qualify for the full state pension even though I was also contracted out at the time? If this is the case, doesn't that mean I would've been £60k worse off if I'd chosen not to contract out, because I would've reached the maximum amount come what may?
1. I contracted out of SERPS in about '96, and stayed out until they ended it.
2. My State Pension summary says that my forecast is £168.60, the maximum available.
3. It also states that I contracted out of SERPS, so it's not like they've not realised this.
4. My NI record shows that I've had full year payments for every year bar 4 since 1986, and all of those were as a student, long before I contracted out.
Everything else I can find on the subject suggests that because I've contracted out of SERPS, my "starting amount for the new state pension" should be lower than if I'd not contracted out, but in my case it isn't. This is what is confusing me!
I am now wondering whether the qualification for the full state pension is based not only on the number of years you've paid NI, but also the amount you've paid?
Could it be that because I've paid a bucket-load of NI over the years, I've paid enough to qualify for the full state pension even though I was also contracted out at the time? If this is the case, doesn't that mean I would've been £60k worse off if I'd chosen not to contract out, because I would've reached the maximum amount come what may?
Kermit power said:
I'm still not getting it, so I'll try putting up some more specific information.
1. I contracted out of SERPS in about '96, and stayed out until they ended it.
2. My State Pension summary says that my forecast is £168.60, the maximum available.
3. It also states that I contracted out of SERPS, so it's not like they've not realised this.
4. My NI record shows that I've had full year payments for every year bar 4 since 1986, and all of those were as a student, long before I contracted out.
Everything else I can find on the subject suggests that because I've contracted out of SERPS, my "starting amount for the new state pension" should be lower than if I'd not contracted out, but in my case it isn't. This is what is confusing me!
I am now wondering whether the qualification for the full state pension is based not only on the number of years you've paid NI, but also the amount you've paid?
Could it be that because I've paid a bucket-load of NI over the years, I've paid enough to qualify for the full state pension even though I was also contracted out at the time? If this is the case, doesn't that mean I would've been £60k worse off if I'd chosen not to contract out, because I would've reached the maximum amount come what may?
In essence yes. It is possible that someone who didn't contract out would get a bit more than the maximum of £168 if they retired recently but you've almost certainly done better - or at least you should do if you can get the pension you paid into working hard. Don't just leave it thinking it's worth £60k because that's worth about £37.50 a week (if you took it now). Work out what return you've actually made & then compare it to the returns you could get from a good low cost provider if you moved it.1. I contracted out of SERPS in about '96, and stayed out until they ended it.
2. My State Pension summary says that my forecast is £168.60, the maximum available.
3. It also states that I contracted out of SERPS, so it's not like they've not realised this.
4. My NI record shows that I've had full year payments for every year bar 4 since 1986, and all of those were as a student, long before I contracted out.
Everything else I can find on the subject suggests that because I've contracted out of SERPS, my "starting amount for the new state pension" should be lower than if I'd not contracted out, but in my case it isn't. This is what is confusing me!
I am now wondering whether the qualification for the full state pension is based not only on the number of years you've paid NI, but also the amount you've paid?
Could it be that because I've paid a bucket-load of NI over the years, I've paid enough to qualify for the full state pension even though I was also contracted out at the time? If this is the case, doesn't that mean I would've been £60k worse off if I'd chosen not to contract out, because I would've reached the maximum amount come what may?
If you really want to get wound up remember you probably need to keep on paying NI contributions long after you've reached qualification for the maximum state pension (depending on your age) so you won't get any benefit.
Kermit power said:
I'm still not getting it, so I'll try putting up some more specific information.
1. I contracted out of SERPS in about '96, and stayed out until they ended it.
2. My State Pension summary says that my forecast is £168.60, the maximum available.
3. It also states that I contracted out of SERPS, so it's not like they've not realised this.
4. My NI record shows that I've had full year payments for every year bar 4 since 1986, and all of those were as a student, long before I contracted out.
Everything else I can find on the subject suggests that because I've contracted out of SERPS, my "starting amount for the new state pension" should be lower than if I'd not contracted out, but in my case it isn't. This is what is confusing me!
I am now wondering whether the qualification for the full state pension is based not only on the number of years you've paid NI, but also the amount you've paid?
Could it be that because I've paid a bucket-load of NI over the years, I've paid enough to qualify for the full state pension even though I was also contracted out at the time? If this is the case, doesn't that mean I would've been £60k worse off if I'd chosen not to contract out, because I would've reached the maximum amount come what may?
That's how I understand it. I'm in a similar position (I think my fund with provider is about 40k), but I too believe I've done well out of this. I remember a few years after contracting out, that an announcement was made that SERPS was 'meaningless' as in future there would be a maximum payment for all if they have enough years contributions. About the only time I've 'won'1. I contracted out of SERPS in about '96, and stayed out until they ended it.
2. My State Pension summary says that my forecast is £168.60, the maximum available.
3. It also states that I contracted out of SERPS, so it's not like they've not realised this.
4. My NI record shows that I've had full year payments for every year bar 4 since 1986, and all of those were as a student, long before I contracted out.
Everything else I can find on the subject suggests that because I've contracted out of SERPS, my "starting amount for the new state pension" should be lower than if I'd not contracted out, but in my case it isn't. This is what is confusing me!
I am now wondering whether the qualification for the full state pension is based not only on the number of years you've paid NI, but also the amount you've paid?
Could it be that because I've paid a bucket-load of NI over the years, I've paid enough to qualify for the full state pension even though I was also contracted out at the time? If this is the case, doesn't that mean I would've been £60k worse off if I'd chosen not to contract out, because I would've reached the maximum amount come what may?
We’d a discussion a few months back, I think I “won” on this occasion with the pension too.
https://www.pistonheads.com/gassing/topic.asp?h=0&...
https://www.pistonheads.com/gassing/topic.asp?h=0&...
Edited by AndyAudi on Thursday 18th July 21:53
Jasey_ said:
The more I red about this s
t the less I seem to know about it !!!!
FFS
https://www.gov.uk/new-state-pension/how-its-calcu...
https://inews.co.uk/news/dwp-state-pension-forecasts-incorrect-overestimated/t the less I seem to know about it !!!!FFS
https://www.gov.uk/new-state-pension/how-its-calcu...
Jasey_ said:
You aint helping my new state of confusion 
From 6 April 2009, the Scheme ceased to contract-out of the State Second Pension (S2P) and, as a result, you
began to build up an entitlement to S2P as well as basic State Pension entitlements. An offset was introduced
to your Scheme pension, known as the State Pension Offset, which will be deducted from your pension when
you reach your State Pension Age (SPA). This offset was designed to take into account the extra S2P you
started to build up, so that your total overall State and Scheme pension would be as near as practicable the
same as if the Scheme had continued to contract-out.
To qualify for extra S2P, you and BT started to pay higher National Insurance (NI) contributions. At the same
time, your Scheme contributions were reduced to compensate you for the higher NI contributions you started
to pay. Please note that members who re-joined the Scheme were not entitled to this reduction in their
Scheme contributions.
From 6 April 2016, the Government changed the State pension system. The basic State Pension and S2P no
longer exist and they have been replaced with a single tier State Pension, which is calculated very differently.
The State Pension Offset has continued to apply to your Scheme pension, however it will no longer be linked
to S2P, as this has been replaced by the single tier State Pension. This means that whilst your Scheme benefits
continued to build up in the same way as previously, your overall State Pension and Scheme pension in
retirement, will not necessarily be the same overall, as it would have been prior to the Government changes.
Your State Pension Offset deduction is shown in the Closure Statement and will increase broadly in line with
National Average Earnings until SPA. In the event of your death, your spouse / civil partner’s pension may be
reduced by 50% of this amount.
Jasey_ said:
Mazinbrum said:
Jasey_ said:
You aint helping my new state of confusion From 6 April 2009, the Scheme ceased to contract-out of the State Second Pension (S2P) and, as a result, you
began to build up an entitlement to S2P as well as basic State Pension entitlements. An offset was introduced
to your Scheme pension, known as the State Pension Offset, which will be deducted from your pension when
you reach your State Pension Age (SPA). This offset was designed to take into account the extra S2P you
started to build up, so that your total overall State and Scheme pension would be as near as practicable the
same as if the Scheme had continued to contract-out.
To qualify for extra S2P, you and BT started to pay higher National Insurance (NI) contributions. At the same
time, your Scheme contributions were reduced to compensate you for the higher NI contributions you started
to pay. Please note that members who re-joined the Scheme were not entitled to this reduction in their
Scheme contributions.
From 6 April 2016, the Government changed the State pension system. The basic State Pension and S2P no
longer exist and they have been replaced with a single tier State Pension, which is calculated very differently.
The State Pension Offset has continued to apply to your Scheme pension, however it will no longer be linked
to S2P, as this has been replaced by the single tier State Pension. This means that whilst your Scheme benefits
continued to build up in the same way as previously, your overall State Pension and Scheme pension in
retirement, will not necessarily be the same overall, as it would have been prior to the Government changes.
Your State Pension Offset deduction is shown in the Closure Statement and will increase broadly in line with
National Average Earnings until SPA. In the event of your death, your spouse / civil partner’s pension may be
reduced by 50% of this amount.
Good luck - I suspect you'll be OK - but you wont know until you've actually retired.
Broardly, what I think BT is saying is:
1. We will provide you with a pension target, being a combination of our pension and the State pension
2. If, for example, the target in your case is 50% of final pay, and assuming that State pension you get is 15% of final pay, BT will provide the balance of 35%.
3. The target is paid from your State pension age when your State pension begins. Consequently, if you start to receive your BT pension before State pension age there will be no State pension paid to you initially, so BT will pay you the full 50%. Once you reach State pension age and start to receive your State pension, your pension from BT will be reduced (in this example to 35%). This means that you get 50% throughout.
Does that help...maybe not!
Things get really messy if like many employees you leave service before retiring so you have a deferred pension. The calculation of the deferred pension is complicated. The same is likely to be the case if you wish to take any pension as a tax free lump sum when you are able to do so.
Lots of pension arrangements used to have this kind of offset and they may still exist for the relevant periods of employment.
R.
1. We will provide you with a pension target, being a combination of our pension and the State pension
2. If, for example, the target in your case is 50% of final pay, and assuming that State pension you get is 15% of final pay, BT will provide the balance of 35%.
3. The target is paid from your State pension age when your State pension begins. Consequently, if you start to receive your BT pension before State pension age there will be no State pension paid to you initially, so BT will pay you the full 50%. Once you reach State pension age and start to receive your State pension, your pension from BT will be reduced (in this example to 35%). This means that you get 50% throughout.
Does that help...maybe not!
Things get really messy if like many employees you leave service before retiring so you have a deferred pension. The calculation of the deferred pension is complicated. The same is likely to be the case if you wish to take any pension as a tax free lump sum when you are able to do so.
Lots of pension arrangements used to have this kind of offset and they may still exist for the relevant periods of employment.
R.
The Leaper said:
Broardly, what I think BT is saying is:
1. We will provide you with a pension target, being a combination of our pension and the State pension
2. If, for example, the target in your case is 50% of final pay, and assuming that State pension you get is 15% of final pay, BT will provide the balance of 35%.
3. The target is paid from your State pension age when your State pension begins. Consequently, if you start to receive your BT pension before State pension age there will be no State pension paid to you initially, so BT will pay you the full 50%. Once you reach State pension age and start to receive your State pension, your pension from BT will be reduced (in this example to 35%). This means that you get 50% throughout.
Does that help...maybe not!
Things get really messy if like many employees you leave service before retiring so you have a deferred pension. The calculation of the deferred pension is complicated. The same is likely to be the case if you wish to take any pension as a tax free lump sum when you are able to do so.
Lots of pension arrangements used to have this kind of offset and they may still exist for the relevant periods of employment.
R.
They closed the final salary last year so I am a deferred member now. They have never mentioned a target, just the DB amount which I can see for any given retirement date on our online planner. I definitely plan to leave early with a 25% lump sum so will see what happens when I'm 67!1. We will provide you with a pension target, being a combination of our pension and the State pension
2. If, for example, the target in your case is 50% of final pay, and assuming that State pension you get is 15% of final pay, BT will provide the balance of 35%.
3. The target is paid from your State pension age when your State pension begins. Consequently, if you start to receive your BT pension before State pension age there will be no State pension paid to you initially, so BT will pay you the full 50%. Once you reach State pension age and start to receive your State pension, your pension from BT will be reduced (in this example to 35%). This means that you get 50% throughout.
Does that help...maybe not!
Things get really messy if like many employees you leave service before retiring so you have a deferred pension. The calculation of the deferred pension is complicated. The same is likely to be the case if you wish to take any pension as a tax free lump sum when you are able to do so.
Lots of pension arrangements used to have this kind of offset and they may still exist for the relevant periods of employment.
R.
Mazinbrum said:
They closed the final salary last year so I am a deferred member now. They have never mentioned a target, just the DB amount which I can see for any given retirement date on our online planner. I definitely plan to leave early with a 25% lump sum so will see what happens when I'm 67!
That could be an issue as it's getting much harder to get anyone to review & recommend cashing in a DB pension. I don't know how many years you have to go, but don't bank on being able to do it.Gassing Station | Finance | Top of Page | What's New | My Stuff