A Brief Guide to SERPS Pension
The acronym SERPS stands for the State Earnings Related Pension Scheme. This is a government scheme that is provided to the employees to support their state pension rights. The SERPS is also termed the Additional State Pension.
What Is a SERPS Pension?
The payment or contribution to SERPS allows you to qualify for the additional state pension which is paid over and above the basic state pension. The SERPS contribution option began in 1978 and ran up to 2002 to support your state pension if you were employed and earned sufficient income to pay Class 1 National Insurance Contributions above the annual lower earnings limit. It may be noted here that if you were self-employed (during the 1978-2002 periods) you would not be eligible to contribute to the SERPS and get its benefits.
How Is a SERPS Pension Paid Out?
The payout of SERPS is dependent upon the following two factors:
i. Your state pension age and
ii. Type of state pension you are eligible for.
All SERPS payouts are routed automatically to your savings bank account when you claim your state pension.
How Much Is a SERPS Pension?
The pension cap at the maximum level is £185.90 a week for the taxation year 2022-23. Here, you should note that the quantum of pension or amount of money as pension depends upon the number of years you have served. If the service period is longer, you may get more pension amounts. If it is shorter, you will get a lesser amount as a pension. Your contribution to the SERPS determines how much you should get.
How Do I Check My SERPS Pension?
You can do this in the following ways:
i. Checking your salary account’s details or maybe the salary slip that shows the deduction in different government schemes including the SERPS.
ii. You can enquire from the authorities running SERPS about deductions meant for your co r not, look at your payslips, or ask for your contribution into this pension fund to check your pension.
iii. Another good option open to you is to check with the COPE (Contracted-Out Pension Equivalent) to check the SERPS pension.
What Happened To The SERPS Pension?
In 2002, this scheme (i.e. SERPS) was replaced by the S2P (State Second Pension to allow an employee to augment their income. The self-employed persons opted out of this benefit.
In other words, the SERPS stopped in 2002 being replaced by the S2P. The operational process of S20 is almost the same as the SERPS.
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Can I Cash In My SERPS Pension?
Encashment or cashing in or taking a SERPS pension is not an option. There, however, is a provision under which you can cash in your SERPS pension. This runs as follows:
i. On contracting out of SERPS, this is possible.
ii. If you have opted for other fund schemes in a private or workplace pension, you do this.
Contracting Out Of SERPS
If you are allowed to contract out of SERPS or even S2P at any point in time but your pension benefits will be stopped. In such a case, the following may happen:
i. The National Insurance contribution made by you and your employer will be lowered.
ii. Your contribution and that of the employer may be put into another workplace or private pension funds.
Inheriting a SERPS Pension
You can inherit a SERPS pension in the case of the death of your spouse or civil partner. You can inherit a part of their SERPS pension entitlement. But the quantum of money you can legally inherit depends on whether they died before or after 6 October 2002. In the case of S2P, you can inherit 50% of the fund accrued. The inheritance is not possible if a spouse remarries or goes for another civil partnership.
How Does SERPS Affect The State Pension I Receive?
The SERPS may affect the state pension that you receive if you have, at any point in time, contracted out of this pension fund even in the case of S2P. This will apply whether or not you have reached the age of retirement.
The SERPS Affects The State Pension You Receive In The Following Manner:
i. Under the New State Pension scheme, introduced on 6 April 2016, you will receive the old ‘basic state pension’.
ii. You are also entitled to receive some ‘additional state pension’ But the quantum or amount of money may be less if you have ever contracted out of SERPS or S2P.
The SERPS (or S2P) can be very helpful at the time of retirement as you sit on a large corpus of money saved from your income and contribution by the employer. You can further augment your monthly income by making prudential investments in different other private funds to generate income. In a way, the SERPS (and S2P) are financial cushions for you on retirement when you are not working. This can be future funds for you years after retirement.