If you are in your sixties and are about to retire or started working in the late 1970s, you may remember SERPS. SERPS was a financial system created by the government at the time to give people extra money on top of the State Pension.
But for young workers in the late seventies, it also belonged to the complex area of pensions and somewhat uninteresting world of retirement. So, memories may be a little misty or vague.
Did you contribute to it? Do you remember the possible benefits? You may have been given the option to opt out – so what happened to the money you would have contributed? Is there a chance you could be looking forward to additional payments on top of the regular State Pension? Most importantly why did SERPS disappear?.
So you’ve heard about SERPS and maybe even remember something about “opting out” back in the day? If you’re scratching your head trying to recall what exactly happened to those pension contributions, you’re not alone! This mysterious chunk of your retirement planning deserves some clarity, especially if you worked anytime between 1978 and 2002.
I have helped many people who were confused about their pension rights, and I can say that the State Earnings Related Pension Scheme (SERPS) still affects thousands of retirees today, even though it ended more than 20 years ago! Let’s look at what really happened when you chose to opt out and what it means for your retirement now.
What Was SERPS Anyway?
SERPS stands for State Earnings Related Pension Scheme, a government program that existed between 1978 and 2002. It was basically a top-up to the basic State Pension, designed to give workers a bit extra in retirement based on how much they earned during their working years.
The original purpose of SERPS was pretty straightforward – to provide a pension linked to your employment earnings over and above the basic State Pension everyone got. When you were part of SERPS, your State Pension had two components:
- The basic amount (same for everyone) provided through standard National Insurance contributions
- The additional rate provided by your SERPS contributions
Additional National Insurance (NI) contributions paid for SERPS. If you paid full Class 1 NI contributions during this time, you were automatically enrolled in SERPS unless you chose to opt out.
How Did “Opting Out” of SERPS Work?
People could “contract out” of SERPS from 1978 to 2002. This is where things get interesting. In real life, this meant that when you chose not to participate:
- Your National Insurance contributions were reduced
- The money that would have gone toward SERPS was redirected elsewhere
- Your future State Pension payout was reduced accordingly
But that money didn’t just disappear! It was redirected to another pension scheme, typically:
- A workplace pension (often a final salary scheme)
- A private pension scheme
From 1988 on, people could either pay their NI contributions or put their money into a “money purchase” pension plan. Many employers who paid their workers a final salary chose not to participate in SERPS because they thought they could offer better pay than SERPS.
What Was a “Protected Rights Pension”?
If you opted out of SERPS, the money that would have been paid into the National Insurance scheme was invested in either a final salary scheme or a private pension scheme. This was called a “Protected Rights Pension.”
These protected rights had special status and restrictions on how they could be used at retirement. However, in 2012, the Protected Rights Pension was abolished, and these funds became available for Pension Release from age 55 (which is rising to 57 in April 2028).
Why Did SERPS End?
SERPS wasn’t exactly a roaring success. In fact, it had problems almost from the beginning:
- When first designed, SERPS was supposed to pay out 25% of your salary
- By the late 1980s, this was reduced to 20%
- By the late 1990s, it was clear that funding SERPS benefits would be difficult for the government
The government’s response was a bit chaotic – first encouraging people to opt out with new incentives, then changing their tune when those alternative schemes were questioned. Many people felt they had been mis-sold pensions that were meant to replace SERPS.
There was also a growing need to create a State Pension that better served lower earners. So in 2002, SERPS was scrapped and replaced with the State Second Pension (S2P or Additional State Pension).
How Do I Know If I Opted Out of SERPS?
This is a common question! Many people feel confused about whether they opted out or not. If you’re unsure, here’s what you can do:
-
Contact HMRC by sending a letter with all your basic details (including your National Insurance number) to:
SARS/DPU
National Insurance Contributions & Employers Office
HM Revenue and Customs
BX9 1AN -
Check your pension statements from workplace or private pensions, which may mention “contracted-out” contributions
-
Look for old payslips that might show reduced NI contributions, indicating you were contracted out
How Does Opting Out Affect My Pension Today?
The impact on your pension today depends on when you reach(ed) State Pension age:
If you reached State Pension age before April 6, 2016:
You qualify for the old basic State Pension system, which means:
- You get the basic State Pension
- Plus you may receive an additional payment from the additional State Pension
- This additional payment reflects your accrued SERPS entitlement (and any S2P entitlement built up after 2002)
If you reached/will reach State Pension age after April 6, 2016:
You’re under the new State Pension system:
- You get a single-tier flat-rate payment
- There’s no separate additional State Pension
- However, if you built up entitlement to additional State Pension, your new State Pension could be increased to reflect this
How Much SERPS Pension Might I Get?
For the 2024/25 tax year, the maximum additional State Pension (including SERPS and S2P) is £218.39 a week. The exact amount depends on several factors:
- How many years you paid NI contributions
- Your earnings level during those years
- How long you were contracted out
- Any voluntary top-ups you made between October 2015 and April 2017
Can I Inherit My Spouse’s SERPS Pension?
Yes, you might be able to inherit SERPS pension entitlement from your spouse or civil partner who has passed away. The amount depends on when they died:
- If they passed away before October 6, 2002: You can inherit 100% of their SERPS pension entitlement
- If they passed away on or after October 6, 2002: The amount you can inherit depends on their birth date
Here’s a quick reference table for those who died on or after October 6, 2002:
| Man’s birth date | Woman’s birth date | SERPS that can be inherited |
|---|---|---|
| October 5, 1937 or earlier | October 5, 1942 or earlier | 100% |
| Oct 6, 1937 – Oct 5, 1939 | Oct 6, 1942 – Oct 5, 1944 | 90% |
| Oct 6, 1939 – Oct 5, 1941 | Oct 6, 1944 – Oct 5, 1946 | 80% |
| Oct 6, 1941 – Oct 5, 1943 | Oct 6, 1946 – Oct 5, 1948 | 70% |
| Oct 6, 1943 – Oct 5, 1945 | Oct 6, 1948 – Jul 5, 1950 | 60% |
| Oct 6, 1945 onwards | Jul 6, 1950 onwards | 50% |
It’s worth noting that the maximum state second pension you can inherit is always capped at 50% for those in the latest birth category.
What Happened to All Contracting Out?
It’s important to know that ALL contracting out stopped on April 5, 2016. After this date:
- Everyone pays National Insurance contributions at the standard rate until they reach State Pension age
- There’s no more opportunity to contract out of the State Pension system
- This coincided with the introduction of the new flat-rate State Pension
Can I Cash In My SERPS Pension?
This is where there’s often confusion:
- You cannot cash in or take a lump sum from your SERPS pension entitlement that’s being paid as part of your State Pension
- However, if you opted out and have a separate pot of protected rights funds in a private or workplace pension, you can potentially access these funds from age 55 (rising to 57 in April 2028)
What’s COPE and How Does It Affect Me?
COPE stands for “Contracted Out Pension Equivalent” – it’s an estimated amount for those who were previously contracted out of the additional State Pension.
If you check your State Pension forecast and see a mention of COPE, this represents the amount that’s been deducted from your new State Pension because you were contracted out. Essentially, it’s the government’s way of accounting for the NI contributions you didn’t make because you were opted out.
How to Check Your State Pension and SERPS Entitlement
We all need to know what we’re gonna get in retirement, so here’s how to check:
-
Get a State Pension forecast from the government website: Check your State Pension
-
This will show your projected State Pension amount and may indicate if you were contracted out
-
If you have workplace pensions from the relevant period, contact them to ask about any contracted-out benefits
Wrapping It Up: What Should I Do Now?
If you worked between 1978 and 2002, SERPS and the decision to opt out (or stay in) could have a significant impact on your retirement income today. Here’s what I recommend:
-
Check if you were contracted out by contacting HMRC or reviewing old pension documents
-
Get a State Pension forecast to understand your current entitlement
-
Identify any workplace or private pensions where your contracted-out contributions went
-
Consider speaking with a financial advisor to understand your options if you have protected rights in a private pension
-
Make sure you’ve claimed any inherited SERPS entitlement if your spouse has passed away
The State Pension system has undergone numerous changes over the decades, and understanding how your past decisions about SERPS affect your current pension situation is crucial for effective retirement planning.
Remember, while opting out of SERPS might have seemed like a good idea at the time (or maybe you didn’t even know it happened!), knowing where those contributions went and how they affect your pension today is what really matters now.
Have you checked your State Pension forecast recently? You might be surprised by what you find!
What were the alternatives when opting out?
From 1988, individuals were allowed to place their money in a money purchase pension scheme instead of NI contributions. For those who chose not to participate, their money could be put into either a private pension or the company’s final salary scheme.
The fact is, employers with a final salary scheme tended to opt out of SERPS. In most cases they could evidence that they could more or less match what SERPS was offering.
What is a Protected Rights Pension?
If you opted out of SERPS, then money which would have been paid into the National Insurance scheme would have been invested in a final salary scheme or a private pension scheme. This was called a Protected Rights Pension. As this scheme was abolished in 2012 it should now be available for Pension Release from the age of 55.
What Does Opting Out of SERPs Mean? – SearchEnginesHub.com
FAQ
What happened to my pension when I opted out of SERPS?
If you were part of a personal or company pension scheme, it’s likely you were ‘contracted out’ of SERPS. You paid less in NI when you contracted out, and your employer or pension scheme put the money you saved into a different pension plan called a “protected rights pension.”
Where have my SERPS gone?
To find your SERPS, you can call HMRC with your NI number and some basic personal information, like your full name and date of birth.
How long do you get SERPS on top of your State Pension?
SERPS ran from 1978 until 2002, and if you paid in after 2002, it was known as the Second State Pension (S2P). If you retired before 6 April 2016, your pension will be made up of both the basic and additional State Pension, whereas if you retired after this date, you get a single payment, which includes both elements.
How do you find out if you are in SERPS?
If you want to check whether you were contracted or not from SERPS, you can reach out to your pension provider or check your old payslips.
What if I opted out of SERPS?
When you opted out of SERPS, your money would have been reinvested in a different pension scheme. It’s likely that it was reinvested in a pension plan known as a ‘protected rights pension’. However, this was abolished in 2012 meaning that the money is available for pension release. What happens to my pension if I leave the UK?.
When did SERPS stop working?
FAQs The State Earnings Related Pension Scheme (SERPS) – also known as the ‘additional state pension’ – operated between 1978 and 2002. It was replaced by the State Second Pension, which ran until 2016. The key questions for many retirees are therefore: did I ever opt out of SERPS?.
What is contracting out of SERPS?
What is contracting out. If you were contracted out of the Additional State Pension (also known as State Second Pension or ‘SERPs’) your National Insurance contributions were either: lower than people paying into the Additional State Pension. paid into another pension, for example a private pension. What was opting out of SERPS?.
Are You ‘contracted out’ of SERPS?
If you were part of a personal or company pension scheme, it’s likely you were ‘contracted out’ of SERPS. Contracting out meant you paid lower NI contributions, with your employer or pension scheme investing the savings into an alternative pension plan, known as a ‘protected rights pension’.
What if I opted out of my SERPS pension?
You would have put the money into either a money purchase pension scheme or a final salary (defined benefit scheme) if you chose not to take your SERPS pension. It may state that this element of your pension has protected rights but this was in fact abolished in 2012. How do I trace my contracted out pension?.
What does ‘opting out’ of SERPS mean & why was it so popular?
What does ‘opting out’ of SERPS mean and why was it so popular? ‘Opting out’ basically means that you make contributions to a private pension scheme – but to do that you will have had to opt out of a nationally available and government-advised scheme (like the SERPS).