SERPS (State Earnings Related Pension Scheme) which many people contributed to as a way of boosting their state pensions, ended in 2002. If you opted out of the scheme before this date and also made significant contributions, you may well be confused as to where those savings are now and whether they can be accessed. In this article, we take a closer look at SERPS and how you can access your money.
The headline facts
Since 2015 the government made it law that you can release all, or a proportion of your retirement savings from the age of 55. For those people facing financial difficulty and wish to release a small amount from their fund, it can offer a significant alternative to taking out the traditional loan. Pensions come in different shapes and sizes and not all pensions can be accessed using the new facility of pension release. SERPS specifically is a government pension scheme which topped up your state pension. Some people were given the option to opt out and those savings were subsequently re-invested in other retirement schemes. Where you invested your money from SERPS will depend on which route you will need to take to access your pension pot.
What is SERPS?
SERPS or the State Earnings Related Pension Scheme first came into use in 1978 and changer to S2P in 2002. It provided a boost to your state pension. Before the changes in 2016, the state pension had 2 tiers: A basic rate – the state pension – which everyone received and an added additional rate which was made up from SERPS (S2P after 2002) contributions for those who paid extra National Insurance contributions (NI).
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What happened when people opted out of their SERPS scheme?
In 1988, people were given the option of opting out of SERPS and putting the money accrued either into a personal pension or the company final salary scheme. Those people who decided to opt usually did so because they wanted the money to go directly to a personal pension rather than to buy NI. However, the original promotion at the time that people would pay less NI, receive better benefits and generally be financially better off has since proved to be questionable.1
Where is my money now?
If you opted out of your SERPS pension, then you would have invested the money into either a money purchase pension scheme or a final salary (defined benefit scheme). It may state that this element of your pension has protected rights but this was in fact abolished in 2012. This money is therefore accessible for pension release.
How can I access my money?
As your SERPS money was reinvested into other pension schemes when you opted out it will now therefore just make up part of your retirement savings. “Pension release” is a facility which allows you to access money from your private pension and most company pensions from the age 55. This does not mean you cannot access your money from a final salary pension you just need to use a slightly different route. For instance, you may need to transfer your retirement savings to a private pension that offers pension release – however you should take into account that by transferring you will lose specific guarantees which are specific to final salary pensions.
Will I be hit by a tax bill when I release money from my pension?
You can take the first 25% of your pension pot tax free. After that withdrawals are taxed. The amount you are taxed depends on which tax bracket you fall into once all of your income sources, including any money that you take from your pension, have been added up.
Do I need to provide SERPS documents to access my money?
No, you don’t. When you opted out of SERPS all of your savings would have been transferred to your new retirement savings scheme. At this point it was no longer SERPS savings and just became an uncategorised part of your savings. When facilitating pension release you are therefore accessing any or all of your pension pot.
How would a financial adviser help me?
Pension release can be a great asset in difficult financial times but because of how it may affect your retirement savings, income and legal status, it is essential that you obtain advice before accessing your fund. A financial adviser will look at your unique requirements and aspirations for the future, assess how your retirement savings may be affected and highlight the ways in which pension release could impact on your lifestyle and finances.
*Tax treatment depends on your individual circumstances and may be subject to change