Contracted Out of SERPs? Urgent Action May Be Required to Safeguard Your Pension
If you started a UK pension scheme since 1985, and contributed very little or stopped contributing, you may have more than you think in your pot. It has come to light that many financial advisers would have contracted people out of the UK second state pension (previously known as SERPS). As such National Insurance contributions would have continued to be paid into these schemes.
It has recently been recommended by the UK Financial Services Authority, that any individual who feels they may fall into this category. i.e. anyone between the age of 35 and 50, that has commenced and perhaps cancelled a private or company pension scheme during their working life, that they contact an financial adviser for advice.
By contacting a financial adviser and discussing your options you will ensure you are getting the most out of your larger than expected fund (if applicable). It may also benefit you to contract back into the second state pension.
Nearly everyone in the UK can expect to get a basic state pension once they reach state retirement age. However you are also eligible to a second state pension if you are employed and paying National Insurance Contributions during your working life, which you will receive come state retirement age you. Up until April 2002, this was referred to as the State Earnings Related Pension Scheme (SERPS).
If you have contracted out of SERPS into a personal or stakeholder pension you will need to decide whether this is the correct action for you. Your decision will be based on your attitude to risk, as well as your personal circumstances.
It is important for each individual to know the risks and disadvantages of being either contracted in or out. By staying contracted out of SERPS you are running the risk that your state retirement income could be lower than that available by receiving benefits from the second state pension.
To summarise, there are thousands of people in the UK who have contributed to pensions, and are contracted out of receiving second state pension benefits. They are unaware that they will not be entitled to receive this, but they are also unaware of the current value of their fund due to National Insurance contributions being paid into a pension scheme they have forgotten about from years previous.
In order to find out whether it is more suitable for you be contracted in or out of SERPS the Financial Services Authority recommends that you seek Independent Financial Advice or pension advice. If you continue to be contracted out of the Second State pension it is also recommended that you review the funds that your National Insurance contributions are being invested in in order to suit your risk profile and maximise growth.
Independent Pension Advice
Gareth Flanagan is an independent financial adviser with Principle First
Financial Services, one of the UK's few firms of Chartered Financial Planners.
For independent pension advice and to benefit from a free pension review
please visit Principle First at http://www.principlefirst.co.uk