If you have contracted out of SERPS then the information on this page will be of interest to you. You may well be better off contracting back into the State Earnings Related Pension Scheme.
Do you know what you have done?
If you contracted out of the Government State Earnings Related Pension Scheme (SERPS), now called State Second Pension (S2P) expecting a better pension than the state pension benefits you could be in for a nasty shock.
Millions of people signed a form requesting the DSS (now called
the Department of Work and Pensions, DWP) to send a National Insurance rebate
to a personal pension contract without really understanding what they had done.
The intention was that the rebate would grow in a pension plan to provide a
pension larger than the Government would have provided in retirement. The Government
promoted the idea and pension sales people jumped on the bandwagon.
Did you actually understand what contracting out meant and what your plan would provide?
Millions of National Insurance payers do not even know if they are contracted "in" or "out". Signing a form without an understanding of the consequences was not uncommon. This very important decision has generally been neglected as no money is taken from a bank account, no direct debits were ever signed, the form only required basic details to be completed and a decision was made, possibly without any proper advice.
The fact is that if you contracted out of SERPS the fund that
has accrued will be unlikely to provide a benefit equal to the guaranteed government
pension. You will undoubtedly have received annual statements giving the fund
details but the figures probably mean very little. The fund benefits have almost
certainly not been reviewed for a long time, if at all.
The initial requirement is obviously to establish the situation and obtain an indication as to the benefits that you may receive in retirement and most importantly whether it is in your interest to continue to be contracted out of the Government system or whether you should consider contracting back into the government system. This means that you can lock into the future guaranteed benefits available from the new S2P system. It is also essential to establish whether the funds in which your SERPS rebates are invested are appropriate and that the charges applied are in line with modern less expensive plans.
Barnes IFA specialise in obtaining this information and collating it into a report that is provided in plain English so that the situation can be understood without any confusion.
At your request and with your authority Barnes IFA will provide a report based on the following actions that we will undertake on your behalf.
We will:
* There is a nominal charge of £25.00 for this service
to cover calculation and administration costs.
In order to answer this question you must ask yourself whether you were actually advised of the risks involved, the consequences of lower than projected performance and the effect of the charges applied or did you just sign a form because someone recommended that "it was the right thing to do" at the time. There is a set procedure to make a justified complaint. For more information read the Complaints page.
Fact
Certain pensions offices in the late 80’s paid pension salesman a fixed amount for every contracting out application that they submitted. The potential for mis-selling was enormous.
The Government has severe problems in providing pension benefits in retirement as everyone’s life expectancy continues to increase. It is feasible therefore that the Government will not encourage people to contract back into the SERPS system as by electing to contract out you are taking on the pension responsibility yourself. The liability and the costs of the guaranteed SERPS payment are then removed from the Government. The Government endorsed contracting out for the initial 5 years of the arrangement by providing enhanced rebate benefits thus providing more encouragement.
Perhaps you are now starting to get an understanding of the
potential of the problem. If you have contracted out the income that you receive
in retirement will be directly affected by the recent drop in value of the global
stock markets.
In order to be able to request any form of compensation or log a complaint for mis-selling you will need to establish whether or not you were provided with enough information at the time you contracted out of SERPS in order to make a correct decision. Would you have made the same decision knowing what you now know? If you were advised by a Financial Services Authority (previously LAUTRO, FIMBRA or PIA) adviser to contract out they had a duty to ensure that you were aware of the risks involved when making a decision. It should have been brought to your attention that if the performance obtained on the SERPS rebates was less than anticipated then the benefits at retirement may not match those that would have been provided by the Government. Although there is no legal obligation for any adviser to regularly review a client’s situation it is our belief that there is a moral obligation as any form of pension contract or indeed investment plan has to be reviewed on a long-term basis during which time many factors may change.
If at the time of sale you were fully aware of the risk that you were taking and the implications of contracting out, the fact that the fund performance, whether due to bad fund management, excessive charges or just the general economic climate has resulted in a pension benefit that does not meet with your expectations it is not necessarily a case of mis-selling or indeed a reason for complaint.
The regulators cannot help if the firm gave you sound advice at the time and you are simply unhappy about how your plan has performed. This is because it is part of the regulators' job to make sure people get suitable advice, but they cannot guarantee investment performance. You should also consider taking professional advice.
Interestingly enough there are millions of people who contracted out whose pension benefits are seriously jeopardised yet they don’t even remember signing the form let alone receiving appropriate advice. When was the last time you properly reviewed the situation? It is imperative that you to obtain the facts and make the correct decision. Contact Barnes IFA for a full review.
If you need further help, you can call the FSA public enquiries
helpline on 0845 606 1234. You can also call the FSA leaflet line on 0845 608
2372 for a free copy of the FSA guide to making a complaint.
Click here to go back to the SERPS Main page