Do I have a SERPS pension?
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Do I have a SERPS pension?
What is a SERPS pension?
SERPS pensions are State Earnings Related Pension Schemes, and they allow people to increase their state pension via the additional state pension and then subsequently the state second pension.
Some people would have contracted out of the additional state pension and as a result they would have had lower national insurance contributions during that period. The surplus national insurance contributions would have been paid into another pension, normally a personal pension.
This scheme operated between 1978 and 2016, if we look at both the additional and the state second pensions.
What is contracting out?
It’s when someone contracted out of the additional state pension and then subsequently the state second pension. You will have agreed not to have the additional state pension to have lower national insurance contributions. The surplus NI contributions would have been put into a personal private pension.
It means you have another pension sitting alongside the state pension.
What can I do with my contracted out SERPS pension?
You have the same options as with any defined contribution pension. You can buy an annuity, which gives you a guaranteed, set income for life.
You also have the usual drawdown option, drawing from the pot by taking a regular income or lump sums. But with that option, the money can run out. Again, it’s worth speaking to a financial advisor to see what the best option is for you and your circumstances.
Not all options are available under every scheme. There is often the option to transfer away to get the option you need. Speak to a financial advisor just in case there are any guarantees that you don’t want to lose.
How do I know if I ever contracted out of SERPS?
You would either check with old employers, check your state pension forecast or seek out your payslips. If you’ve got any documentation from providers, see if there’s any reference to contracted out rights or protected rights on the paperwork – that should answer your question.
Will I get a full state pension if I contracted out of SERPS?
Check the state pension forecast, because it will depend on your contributions. In short, you can still get the full state pension if you’ve contracted out SERPS so long as you have enough qualifying years.
Likewise, you might not if you don’t have enough qualifying years to get the full state pension because you were contracted out for a while. That state pension forecast will show if you are entitled to it or not.
Can I contract out if I’m under state pension age? What if I am over state pension age?
You can’t – it stopped in 2016. As of now there’s nothing you can do to contract out. There’s no additional state pension as it stands now – they’ve changed the rules on state pensions and the benefit you get from it.
Can I transfer my SERPS pension to another provider?
Yes. If you’ve got a contracted out SERPS pension you can move it to another provider. But with old legacy pensions it’s often worth checking for any guarantees or safeguarded benefits which might be lost if you were to transfer it away.
It’s really important to get independent financial advice just to make sure that you’re choosing the right and the best option for you and your circumstances.
Where did my SERPS contributions go?
If you contracted out of SERPS then the contributions would have gone normally into a personal pension plan or a private pension plan, as some people call it. That would have sat with a provider – there’s no specific provider that that would have gone to.
How do I check my SERPS pension?
If you’re looking through all your various pensions, there’ll often be a reference somewhere to ‘contracted out rights’ or ‘protected rights.’ That may give you some indication as to whether that pension plan is from contracting out of SERPS.
If you were employed before April 2016 there’s a good chance that you may have been contracted out at some point. Most public sector workers, NHS workers and teachers, for example, were contracted out. If you’re in the public sector it’s definitely worth checking if you have one of these contracted out pensions.
The other thing you can do if you haven’t got any old pension documentation, you can Google state pension forecasts. On the government website you can check your state pension entitlement if you’re under state pension age – which as we speak today is 66 years old.
They’ll give you a contracted out pension equivalent estimate. If you’re over state pension age and you’ve got your old pay slips from before 2016 you can check those. There should be a category with a number of letters, – D, E, N, L or O – and that will let you know you were contracted out.
You probably don’t have pay slips from before then if you’re over state pension age, so the other thing you can do is go back to your old employers or just ask any pension providers that you have contact with if you were contracted out of SERPS at any stage and they should have that information.
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Can I access my SERPS pension?
If it’s a contracted out SERPS pension, normally you can access it from age 55. That’s going to go up to 57 in 2028. As I mentioned earlier, it’s worth checking any guarantees or safeguarded benefits – or even what we call market value reductions. That means what you get from the plan might be less than the value.
It’s always worth checking some of these points or speaking to a financial advisor to make sure you don’t do anything that’s disadvantageous to you.
How is SERPS entitlement calculated?
It would have been based on your income at the time and the level of national insurance that you paid. That will give you the contribution into your contracted out pension and therefore the level of investment and fund value.
Does a SERPS pension increase each year?
Again, if we’re talking about contract out SERPS pensions, the money’s normally invested, so therefore it can go up and down in value. It can increase and it should in theory increase over a number of years.
But some of these old plans have changed providers over the years, and it’s worth double checking how it has been performing. Some of these old plans don’t always perform particularly well or have very high charges – so do check that out.
What would happen if I opted out of SERPS years ago?
If you contracted out you’d have had lower national insurance contributions, but a surplus that would have gone towards the additional state pension would have been paid into another pension – normally a personal or private pension.
Do you still get a state pension if you opted out of SERPS?
Yes, assuming you’ve got enough qualifying years, you’re still entitled to the state pension. It might be reduced as a result of contracting out – so check your state pension forecast to see what you will get.
Where is my pension if I opted out of SERPS?
It will be with a pension provider. You should have had some documentation at some point – certainly from setting the scheme up. But because a lot of these are old policies and providers have been taken over, it can be difficult sometimes to track these down.
Speak to an independent financial advisor, because we can normally trace where the pension is. As long as we know one of the providers at one point in time we can normally figure out where that pension is now.
What happens to my SERPS pension if I divorce?
If it’s a contracted out pension then it would be as per any other personal pension. It can be split in divorce. If we’re talking about SERPS pension as in the additional state pension or state second pension, that is linked to your state pension. That element can be split in divorce.
Can my SERPS pension be inherited?
Again, if we’re talking about SERPS pensions as in the additional state pension or state second pension then yes, that can be inherited. It will depend on the deceased’s date of birth as to how much can be inherited.
If you’ve contracted out and it’s sitting in a personal pension, then it depends on the scheme rules. But normally yes, that can be inherited in full by the surviving spouse.
Why would I speak to a financial advisor about my SERPS pension?
There are a number of reasons why you’d want to speak to someone about these. They are old schemes and they’ve often changed hands many times. Therefore the fund performance may not be great – older funds aren’t always well looked after. The charges on the plans can be high sometimes, and the risk level might no longer be relevant to your circumstances.
If you took this out years ago, you may have been happy with a higher level of risk because it was a long time until retirement. If you will be retiring in the next few years you will usually want a lower risk pension.
Getting the right advice is very important in terms of making sure it’s performing, getting the risk level right and making sure the charges aren’t too high.
As I’ve mentioned a couple of times, sometimes there are guaranteed or safeguarded benefits which you may wish to keep. These can be quite complex to understand, and an advisor can really help you explore your options in full, quite simply.
Have you helped people with a SERPS pension before?
Yes, we do quite a few every year. I did one earlier this year where a client had a contracted out pension. We recommended moving it away because the charges were high and the fund was actually not suitable for the client.
We moved it to allow her to have flexi-drawdown and to get a better fund performance – and reduced the charges as well. We hit three things in one.
Can I take a lump sum from my SERPS pension at 55?
Yes, subject to the scheme rules, you can. You just have to be a little bit careful because some old pensions say that you have to take the pension in full.
Some of it would be tax free and some of it would be taxable. If it’s a large amount then that tax element is going to be quite heavy, so it might not be the best thing to do.
So while normally you can do it, it’s worth seeking advice.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.