What is a SERPS pension and can I cash it in? | unbiased.co.uk (2024)

FAQs

Can you cash in Serps? ›

You can't 'cash in' your SERPS. The additional state pension is only ever paid along with your basic state pension, usually directly into your bank account. The income is guaranteed for life, meaning it will never run out. You may be confused if you have read elsewhere about 'cashing in' a SERPS pension.

You can leave (called 'opting out') if you want to. If you opt out within a month of your employer adding you to the scheme, you'll get back any money you've already paid in. You may not be able to get your payments refunded if you opt out later - they'll usually stay in your pension until you retire.

A SERP generally takes on the form of a cash value life insurance policy. Companies buy an insurance policy of an agreed-upon amount for the employee. The company gets tax benefits because it pays the premiums on the insurance. Even if the employee quits, the company still has access to the insurance's cash value.

Take cash lump sums

You can take your whole pension pot as cash straight away if you want to, no matter what size it is. You can also take smaller sums as cash whenever you need to. 25% of your total pension pot will be tax-free. You'll pay tax on the rest as if it were income.

Although SERPs could be paid out of cash flows or investment funds, most are funded through a cash value life insurance plan. The employer buys the insurance policy, pays the premiums, and has access to its cash value. The employee receives supplemental retirement income paid for through the insurance policy.

If you were contracted out of the additional state pension you would have paid a lower rate of National Insurance contributions because you were contributing to a workplace or personal pension instead and this means that your new state pension amount may be lower than that of someone who was not contracted out.

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.

You can claim and receive a UK State Pension while living overseas. But Pension Credit stops when you move overseas permanently. This is a means-tested benefit, which can top up your weekly income. Your State Pension can be paid to a UK bank or building society account, or to an overseas account in the local currency.

Additional State Pension, also known as the State Earnings-Related Pension Scheme (SERPS) and State Second Pension, is an extra amount of money you could get on top of your basic State Pension if you're a man born before 6 April 1951 or a woman born before 6 April 1953.

This supplemental retirement plan can amass benefits of up to 70% of pre-retirement income, making it a valuable tool for building a nest egg. SERP withdrawals are taxed as regular income, but taxes on that income are deferred until you start making withdrawals.

When can you withdraw from a SERP? ›

The funds can be withdrawn, without penalty, before you turn 59½, nor do you need to begin required minimum distributions at age 73. Although most employers require distributions to begin at retirement or when you are no longer employed. SERPs can be designed with many different options or configurations.

Easy SERPS check

We'll just need your National Insurance number (NI number) and basic details to contact HMRC on your behalf and find out if you have a SERPS pension. Our HMRC SERPS check is free with no obligation.

For most pension schemes, it is not possible to access your pension until you are at least 55. You can, however, transfer to a new provider at any time. But if you're 55 or older, you can move your pension into your bank account. Even then, though, it is unlikely to be a good idea to take all of your pension in one go.

Typically that's 65, though many pension plans allow you to start collecting early retirement benefits as early as age 55. If you decide to start receiving benefits before you reach full retirement age, the size of your monthly payout will be less than it would have been if you'd waited.

Women normally need 39 qualifying years to get a full basic State Pension. Men normally need 44 qualifying years to get a full basic State Pension. To get the lowest amount of basic State Pension (25% of a full basic State Pension) you normally need 10 or 11 qualifying years, depending on your State Pension age.

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.

If you have any payslips with the category letters D, E, L, N or O, then you were contracted out. You can also ask: your employers. your pension providers.

If you take a distribution from your retirement plan early (meaning before the day you turn 59 1/2), you'll generally have to pay a 10% early distribution tax above and beyond any regular income taxes you may owe on the money.

If your company is in a volatile sector or has financial troubles, it may be worth taking a lump sum. But for most individuals, these are unlikely scenarios. If you have a pension plan, you should also know that it is risky to take a loan from your plan and will probably cost you more in the long term.