What is a SERPS pension ?

Firstly – what is a SERPS Pension ?

SERPS stands for State Earnings Related Pension Scheme. 

The idea or talk of SERPS, creates confusion and bewilderment to the vast majority of people within the UK.

But Why ?

In  the past individuals were asked to join a pension by their employers. Many people were unaware that they then created a new pension arrangement directly with a pension provider. Many people would have lost track of paperwork and who their pension was held with. Or they could be completely unaware that they have a separate pension product with a pension company at all.

As part of my day to day consultation with clients about pension options, it’s a common question that get asked. Based upon the age profile of the clients. Who are in the 50’s or 60’s and are thinking of accessing their respective pensions.

Most providers don’t write to clients on a regular basis, they are not required to. Unlike now though Auto Enrolment, whereby schemes are required to provide an annual statement to members.

People could have a policy form the 1980’s or 90’s and they may have moved address, got remarried. So a provider could lose track of where the member resides.

Some clients I speak to even think it may be a SCAM so are reluctant to believe that this pension actually exists.

So what exactly is SERPS ?

It was introduced in 1978 as a simple top-up to the then basic state pension that was in place.

The amount that you would receive at state pension age would be related to your level of contributions during the period you contracted out .

This resulted in lower level of contributions being paid by individual as they would only pay basic class 1 National Insurance Contributions. (as the rates applicable during that period)

Why was this done by employers and employees ?

Quite simply, many people were advised to opt out, and their national insurance rebated amount was paid directly into a private pension on their behalf. With the idea and aim, that these funds invested elsewhere would provide better pension benefits in future years at the time of their retirement. 

In the past, many people were unaware of how pensions work and their funds invested.

Nobody ever taught me in the past about financial products, pensions , investing etc or how certain products worked. So most people acted in blind faith and on information they were given at that time by respective employers.

So what happened to my contributions ?

• It  resulted in lower pension sum paid by employer.
• The sums were paid directly into a private personal pension.
• They were most involved in w/profits funds or annuity funds.

The amounts paid into a new scheme was known as ” protected rights”

Previously, only those people who belonged to gold-plated Defined Benefits (aka Final Salary) could contract out to a SERPS arrangement.

But this option was changed way back in 1988 for all individuals. So it was introduced to cover Defined Contributions (DC) schemes also.

It was also incentivised for people to leave SERPS, so for the first 5 years. The government would contribute an extra 2% of your earnings into stated pension arrangement.

The rules were then changed in 2012, so that only people belonging to a final salary (DB scheme) would be contracted out moving forwards.

If you were in a defined contribution (DC), they would be be contracted back into the state system and would pay national insurance at the normal rates applicable.

Unfortunately though, things were soon changed after a short period. 

The idea and notion for anyone to be considered contracted out was stopped in April 2016. 

So what happens at retirement ?

If you were entitled to a SERPS pension, you will receive it at normal state pension age. Currently aged 66 for both men and women, although this will rise to 67 in coming years. (dependent upon your date of birth)

If you reached State pension age before Aril 2016, you should have received both he basic state pension amount plus the additional state pensions (known as 2nd state pension).

As stated above it would have linked to how much you earned, and the length of contributions in paid. The amount payable to each person would be based on personal circumstances.

If you did happen to opt out of the SERPS system. You should have a protected rights pension directly with a pension provider. 

Under current rules, you can access that pension at age 55, (known as minimum pension age) although this will increase to age 57 from 6th April 2028.

This will only affect individuals who may be in their early 50’s at present. You are then free to access that pension however you wish through Pensions Freedom. So it could be used to buy an annuity, FAD, UFPLS or cashed in completely. 

Upon accessing it may be worthwhile speaking to your provider over the options available.

Or you could take advanced of a free and impartial service, called Pension Wise. Offered by Money & Pensions Service (MAPS) or by guiders through Citizens Advice who run and operate that government contract. 

For details on how to book an appointment, click the following link:

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Finally, how can I find a missing SERPS pension ?

Again, take advantage of a free service offered by gov.uk called the Pension Tracing Service:

https://www.gov.uk/plan-for-retirement

or call them onTelephone: 0800 731 0193
From outside the UK: +44 (0)191 215 4491
Textphone: 0800 731 0176
Relay UK (if you cannot hear or speak on the phone): 18001 then 0800 731 0193
British Sign Language (BSL) video relay service if you’re on a computer – find out how to use the service on mobile or tablet
Monday to Friday, 10am to 3pm
Find out about call charges

This free may request some personal information such as name, date of birth, respective employer’s name etc. But it could be very rewarding and who knows what pension you may find ?

The other option is a provider could track you down and may write to you at specific date ahead of accessing.

Summary:

Hopefully the above has provided some insight into SERPS as part of the topic of pensions. 

Remember, if you found this blog post interesting. Please feel free to check out my other posts on https://moneyminted.co.uk covering pensions, savings, recommended investing books. So you can improve your financial and investing knowledge. So hopefully you can reach your financial goals and aims some time in the future.