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Personal finance

Choosing Between Serps and Personal Pension Plans

Strategic Insights

— 1 min read

A decision over whether to opt out of the state earnings-related pensions scheme (Serps) using a personal pension plan depends on factors such as income, age, and the scheme's charges. Those earning less than £8,500 a year will receive a small National Insurance contribution rebate, making it uneconomic to opt out. However, for individuals under 40 (men) or 35 (women), the rebate value may exceed Serps benefits. The Government will change the rebate calculation in April 1997 to attract older employees.

Key Takeaways:

  • To opt out of Serps using a personal pension plan, income, age, and scheme charges must be considered, as the National Insurance contribution rebate may be small for low-income earners, around £8,500 or less.
  • The rebate value is greater for individuals under 40 (men) or 35 (women), but the decision also depends on individual circumstances and the charges of the personal pension plan.
  • The Government will alter the rebate calculation in April 1997 to make it more attractive to older employees.
  • The National Insurance contribution rebate is based on 'band earnings' between £2,964 and £22,360, with a maximum rebate of around £1,000 for the 1994-95 tax year, or around £1,200 for those over 30.
  • The fund built up from NIC rebates must usually be taken at the age of 65 (men) or 60 (women), rising to 65 for women during the early part of the next century.

Statistics:

  • The National Insurance contribution rebate for low-income earners (below £8,500) is small.
  • The rebate value is greater for individuals under 40 (men) or 35 (women).
  • The Government will change the rebate calculation in April 1997 to make it more attractive to older employees.
  • The National Insurance contribution rebate is calculated based on 'band earnings' between £2,964 and £22,360.
  • The maximum rebate for the 1994-95 tax year is around £1,000, or £1,200 for those over 30.
  • The fund built up from NIC rebates must usually be taken at the age of 65 (men) or 60 (women), rising to 65 for women during the early part of the next century.

Sources:

  • Department of Social Security - SEPS (State Earnings-Related Pension Scheme)
  • The Observer - upcoming guide to companies offering personal pension plans

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