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Old 9th Mar 2014, 16:11   #1
Flukester
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SERPS / Second State Pension Opt Out Win

Hi all

Just made a mind blowing discovery... which I thought I would share as no doubt a few here are in the same position.

Back in 1991 I opted out of SERPS (now Second State Pension) and had this part of my NI payed into a private pension. This up to a little while ago due to low returns on pensions was told to be a bad mistake. Come 2017, the Second State Pension is abolished and I will resume full NI payments into the new single state pension...which is capped at 144 a week regardless of how much you payed in.

Here is the thing, as I have over 10 years before retirement I will rebuild to the full state pension, AND have a private pension pot of over 35k (in effect for free) and I'll have 25% of that tax free on retirement lump sum. Any thoughts on this ?, seems the people who thought they made a bad opt out choice in the late 80s / 90s now have a big big win (basically money for nothing)

Those that didn't opt out will of been paying to get a bigger state pension pot for nothing due to 2017 capping as you only have to earn your 144 a week entitlement, which I will do even though I opted out.

Here is the quote form the article I read...

Big winners are those who contracted out into a personal pension, even though we have been told for the last decade that this was the wrong thing to do. They get to keep their pots – which could be worth as much as 100,000 – and can still build up their state pension from 107.45 to 144 at the rate of 4.11 a year. Anyone in this group with at least 10 years to state pension age when the new rules take effect in 2017 will be able to get the same state pension as someone who remained contracted in, and will get to keep their contracted-out pot as well. It’s maybe not what ministers wanted, but it’s just one of the many consequences of unravelling 35 years of complexity in the state pension system


(the above may be flawed thinking, but I read about this online and will confirm tomorrow with my pension company)
Last edited by Flukester; 9th Mar 2014 at 16:26.
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Old 9th Mar 2014, 16:32   #2
Mr Badger
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Sounds about right to me. I'm paying NI at the higher rate (no choice due to the nature of my pension scheme) and as I understand it I will get back nothing extra for it. Good old government moving those goalposts and doing things with the state scheme (such as pushing back the retirement age for accrued benefits) that would be totally illegal for a private arrangement.

Think you owe me a beer
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Old 9th Mar 2014, 16:36   #3
Flukester
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Yeah, very unfair, but if this pans out correct I've gone from loser to winner.... those SERPS opt out pensions were sold on commission by some very dodgy geezers with terrible advice.
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Old 9th Mar 2014, 16:42   #4
Skidder
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Quote:
Originally Posted by Flukester View Post
Hi all

will of been paying
grrrrr



pensions meh, not going to serve their intended purpose

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Old 9th Mar 2014, 16:57   #5
chief barker
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I opted out of SERPS back in 1987 when I first started work, my NI contributions went to the prudential pension scheme.

Joined the DM at 21 and immediately joined the final salary pension scheme, i'm now 42.

What does this mean for me? The pru still have my funds.

I think I need to see my FA to see what's going on with it all.
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Old 9th Mar 2014, 17:05   #6
Flukester
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I think it means you will still build up to full single state pension when it kicks in over in 2017 (will take until 2027 to qualify for the 144 a week) before retirement and you get to keep your Pru pension that you have been paying into
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Old 9th Mar 2014, 17:09   #7
chief barker
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Quote:
Originally Posted by Flukester View Post
I think it means you will still build up to full single state pension when it kicks in over in 2017 (will take until 2027 to qualify for the 144 a week) before retirement and you get to keep your Pru pension that you have been paying into
Cheers mate, if I live that long
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Old 9th Mar 2014, 18:42   #8
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Maybe I won't be as poor as I thought I would be when I was old. I opted out of SERPS and paid into a pension through my employer because at the time it was a better deal. My employer made the terms of that pension increasingly worse (bigger and bigger payments for a smaller and smaller pension) until I chose to freeze it a few months ago because it was more money than I could afford each month in exchange for a pension of a few thousand a year.

Maybe now I'll get some benefit for those years I spent scrimping and saving to pay pension contributions and AVCs on a very low wage because I thought it was the right thing to do.

Or maybe not. I expect to get shafted because I'm poor. It's the way of the world. But maybe I'll be pleasantly surprised. Maybe I'll be able to eat and heat my home to the tropical summer temperatures that seem to be necessary when you're old.
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Old 9th Mar 2014, 19:09   #9
Hikari Kisugi
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Cheers mate, if I live that long
If you don't live that long and you've haven't drawn anything down on it, the private pot is actually transferrable to your inheritors.
As part of their own pension pot, not as a cash sum, iirc.

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Old 9th Mar 2014, 19:21   #10
Mr Badger
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Originally Posted by Angilion View Post

Or maybe not. I expect to get shafted because I'm poor. It's the way of the world. But maybe I'll be pleasantly surprised. Maybe I'll be able to eat and heat my home to the tropical summer temperatures that seem to be necessary when you're old.
Generally you get shafted if you have a little bit of money rather than being totally poor. Those with nothing tend to get taken care of by the state and those that are wealthy can look after themselves. If you have done your best to be sensible and save something for the future you can find that you don't qualify for much/any extra help even though you are far from well off.
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Old 9th Mar 2014, 20:26   #11
Macro
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I'd not read anything about this, got any more detail? Is there anything we need to do for this or is it automatic?


The above is just my personal opinion and frankly probably made up
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Old 9th Mar 2014, 22:26   #12
The_Abyss
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Quote:
Originally Posted by Flukester View Post
...the new single state pension...which is capped at 144 a week regardless of how much you payed in.
The new state pension is capped, but there is a transition period where accrued benefits will continue to count. That means...

Quote:
Originally Posted by Flukester View Post
..AND have a private pension pot of over 35k (in effect for free)
it isn't quite free. You might have been better staying contracted in, you might not. You won't know until you draw on it.

Quote:
Originally Posted by Flukester View Post
...and I'll have 25% of that tax free on retirement lump sum.
Yep - that part is all correct. It was a major influencing factor in many people choosing to contract out.

If anyone wants to see where they are now, just complete a BR19 form or get a state pension forecast online https://www.gov.uk/state-pension-statement
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Old 10th Mar 2014, 05:18   #13
Flukester
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Do you know how long the transition period is ?

If my by retirement in 25+ years the transition period is over (which I guess it will be), I will of effectively got my 25 odd years of SERPS / Second Pension Opt outs pension for no impact at all on State Pension

I don't think filling the form or doing the online calculator will allow for the change in 2017.
Last edited by Flukester; 10th Mar 2014 at 05:23.
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Old 10th Mar 2014, 22:11   #14
The_Abyss
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I'll have to look it up at work tomorrow, but I believe transition was up until 2017. If you've accrued a certain amount of SERPS / S2P benefits then those will carry over - something like 40 a week. Lower amounts may be 'lost', as in you'll get the same income anyway.

I know the last time I did a forecast I had already accrued some additional 70 a week of additional state pension so, like many others, I'll retain that at retirement. That's why it is worth checking the calculator - to see what your existing benefits are.
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