Misplaced Pages

#434565

25-426: SERPS may refer to: State Earnings-Related Pension Scheme , a UK Government pension arrangement from April 6, 1978 to April 5, 2002 SERPs, short for search engine results pages Topics referred to by the same term [REDACTED] This disambiguation page lists articles associated with the title SERPS . If an internal link led you here, you may wish to change

50-487: A Guaranteed Minimum Pension . In return for opting out of SERPS the employer would pay reduced National Insurance contributions. In 1988 members of money purchase pension schemes were allowed to opt out for the first time. Instead of providing a Guaranteed Minimum Pension these schemes had to pay the saving in National Insurance contributions into the pension arrangement. To encourage the take-up of this arrangement

75-408: A stakeholder pension or a personal pension plan which they may nominate. This vehicle was then known as an 'appropriate personal pension', or APP. If they did this, instead of their paying lower National Insurance contributions, once a year HM Revenue & Customs paid directly into their APP a rebate, sometimes known as a 'minimum contribution'. This rebate is intended to provide benefits broadly

100-447: A "lower earning limit" (approximating to the amount of the basic state pension ). The scheme was phased in over twenty years so that those retiring before 1998 received a SERPS pension proportional to the number of years that they had made contributions to it. There was an "upper earning limit" of about seven times the lower earning limit, beyond which earnings were disregarded for NI contributions and calculation of SERPS pensions. Under

125-449: A SERPS pension. Members of occupational pension schemes could be "contracted out" of SERPS by their employer, in which case they and the employer would pay reduced NI contributions, and they would earn virtually no SERPS pension. The purpose of the scheme was to provide a pension related to earnings, in addition to the basic state pension . The principle was that everyone would receive a SERPS pension of 25 per cent of their earnings above

150-497: A year) SERPS and S2P pensions are equal and the same rate of accrual (20 per cent) applies above that. These percentages are the entitlement of employees who have contributed to the scheme for a full working life. This is defined as the number of years between age 16 and State Pension Age. If the employee was over age 16 on 6 April 1978, their working life is defined as the number of years between 6 April 1978 and their State Pension Date. If an employed earner had annual earnings above

175-467: Is retained and revalued each year in line with the changes in average earnings (that is, in "real" terms) until State Pension Age . It is then added to any Basic State Pension payable, and the combined amount uprated thereafter in line with the index of retail prices ( RPI ). S2P gives all employees earning up to £32,592 a year (in 2011/12) a larger pension than SERPS, regardless of whether they are "contracted out" or not – with most help going to those in

200-725: The New State Pension. State Second Pension The State Second Pension ( S2P ), or Additional State Pension , was introduced in the UK by the Labour Government on 6 April 2002, to replace the SERPS ( State Earnings-Related Pension Scheme ). The main aim of this change was to skew existing Additional Pension (AP) benefits in favour of low and moderate earners at the expense of higher earners and to extend access to include certain carers and people with long-term illness or disability for

225-491: The Social Security Act 1986 the target SERPS pension was reduced from twenty five to twenty per cent of average earnings between the two limits. Pensions earned before 6 April 1988 were not reduced and the change was to be phased in for people retiring between 1999 and 2009. When the scheme was established, employers with final-salary pension schemes could choose to contract-out of SERPS, provided they gave scheme members

250-415: The '"lowest"' earnings (up to £14,400 a year in 2011/12) – known as the "LET" or '"Low Earnings Threshold"'. The accrual rates within each band of earnings are: Earnings in the lowest band are treated as though they were actually at the threshold of the next band. Thus, under SERPS, earnings of £10,000 a year would produce a pension of just £939 a year - 20 per cent of ( £10,000 - £5,304 ) – whereas under S2P

275-489: The Additional Pension, but if this was done, there was no rebate. A person will usually get tax relief on all their contributions into a private pension at the basic rate of income tax (22 percent in the 2006/07 tax year) irrespective of income tax actually paid. If they have paid income tax at the higher rate (40 per cent in 2006/07) also, their contributions are relieved at this rate, but only against that income on which

SECTION 10

#1732858064435

300-582: The LEL they become part of State Pension scheme, and must pay some National Insurance contributions. However, they could choose to leave the Additional Pension element of the State Pension by joining a private pension scheme or holding a private pension plan instead. This was called "contracting out". There were two kinds of contracting out concerning the Additional Pension (SERPS/S2P). If chosen to contract out by joining an employer's occupational pension scheme, both

325-500: The LET (£9,000 for instance) their rebate will be based on their actual band earnings (£9,000 - £4,368) so that they would still receive some S2P through their State pension later – equivalent to the difference remaining (here, £12,500 - £9,000). If an individual chose this sort of second pension, in lieu of being 'contracted-in', it should give them roughly the same amount one would get from the Additional Pension. Whether it does or not rests on

350-608: The advice to contract out of SERPS. As the government began to question the long-term affordability of the SERPS, they offered incentives to encourage people to opt out of the SERPS into an Appropriate Personal Pension (APP). The rebates offered by the government as incentives to opting out have since been cut, causing many to question whether it was misleading to encourage people to opt out, as many are now being advised to opt back in. Ultimately, investigations have shown that mis-sold pension affected some, but not others. For some, returning to

375-585: The difference between the higher level of the S2P and the lower level of SERPS which they have contracted out from when they come to draw on their State Pension. This form of contracting-out lasts as long as the individual remains a member of the employer's scheme – usually as long as they remain in a particular job. Once they leave a job, and resume employment elsewhere, they default to being 'contracted in', unless moving directly to contracted-out employment elsewhere. A person could also contract out of Additional Pension with

400-483: The employee and their employer paid reduced-rate National Insurance contributions. When the employee retires their second pension then comes partly from the employer's scheme (deemed funded from the lower rate of contributions collected being diverted to this purpose) rather than the Additional Pension, although most people will continue to build up some entitlement to AP at the same time. Because they will continue to pay some National Insurance, such employees will receive

425-553: The first time. The Additional State Pension was replaced for new pensioners by the new State Pension on 6 April 2016. Before April 2002, AP was provided through the State Earnings-Related Pension Scheme , (SERPS). SERPS was a career average pension scheme, based on the band of earnings each year between a "LEL" or '"Lower Earnings Limit"' (£5,304 in 2011/12) and a "UEL" or '"Upper Earnings Limit"' (£42,475 in 2011/12). Any SERPS entitlement already built up

450-507: The government made an extra incentive payment into each pension scheme where somebody contracted out using this route. According to the Financial Services Authority, many policy holders who contracted out of the state pension may have been victims of SERPs Pension Mis-selling and lost funds that deserve compensation. Hence an investigation was launched to investigate the claims that millions of employees had been led astray with

475-444: The higher rate was paid. With SERPS and S2P, although the National Insurance rebate was intended to provide benefits broadly the same as the Additional Pension given up, there was controversy over whether the rebates were sufficient based on then projections for investment returns and annuity rates. Many IFAs and Personal Pension providers encouraged some or all of their customers to contract back in. Those who contracted in gained

500-413: The investment returns from the rebate being sufficient to purchase additional income (usually in the form of an annuity .) One may still need to think about whether this predetermined level of pension would be enough to support the lifestyle one had planned when they retired. It was also possible to use a stakeholder pension or a personal pension plan to build up retirement funds without contracting out of

525-478: The link to point directly to the intended article. Retrieved from " https://en.wikipedia.org/w/index.php?title=SERPS&oldid=933119512 " Category : Disambiguation pages Hidden categories: Short description is different from Wikidata All article disambiguation pages All disambiguation pages State Earnings-Related Pension Scheme Employees who paid full Class 1 National insurance contribution between 1978 and 2002 earned

SECTION 20

#1732858064435

550-464: The same as the Additional Pension given up – that is, full S2P. Its value is therefore determined by reference to the individual's age and level of earnings that year but not directly by how much they may pay in National Insurance in that particular year. This second form of contracting out occurs one (tax) year at a time – each year the individual has the option to elect to contract back into the full S2P Additional Pension. Where an employee earns less than

575-401: The same earnings would lead to a pension of £3,638 a year – 40 per cent of ( £14,400 - £5,304 ) – nearly four times as much. However, under SERPS earnings of £25,000 a year would produce a pension of £3939 a year – 20 per cent of ( £25,000 - £5,304 ) - but under S2P only £4,698 a year – 40 per cent of £9,096 plus 10 per cent of ( £25,000 - £14,400 ). At the " 3 × LET - 2 × LEL " threshold (£32,592

600-408: The security of a known pension level which was not determined by investment returns or annuity rates but lost the flexibility to take their pension before state pension age, or receive a tax-free lump sum payment on retirement. One advantage of contracting out was that the funds were invested privately on behalf of the individual. This meant that they were protected against future government changes to

625-605: The state pension is a favorable option, but for others in different financial circumstances and with different financial needs, the APP option is also beneficial. In April 2002 SERPS accrual ended and was replaced by the State Second Pension . The main reason for the change was to provide a larger pension to people of low earnings. From April 2016 the old Basic State Pension plus Additional State Pension (SERPS, State Second Pension and Graduated Retirement Benefit ) were replaced by

#434565