Recipients of Serps payments have another two and a half years' reprieve to prepare extra provisions...
Recipients of Serps payments have another two and a half years' reprieve to prepare extra provisions for their spouse on their death after the Government put off halving inherited Serps entitlements until October 2002.
This also gives people time to prove they were misled by the Department of Social Security (DSS) on the matter between 1987 and 1996 but product providers believe successfully proving an investor was misled will be difficult.
In 1986, the Conservative government announced that when a receiver of Serps died, the entitlements for the surviving spouse would drop to 50% of the former level but put off the change until April 2000. The Conservatives remained in power for another 10 years and during this time the DSS issued leaflets which did not refer to the issue and Benefits Agency staff gave 'wrong information' to a number of people, according to Social Security Secretary, Alistair Darling.
"There is a clear responsibility to ensure that the information they provide is accurate and complete. In this case, it was not," Darling said in mid-March. "Even the serious implications of giving the wrong information were not appreciated by the department."
A special Inherited Serps Scheme will be set up to sort out the problem, which is expected to cost the Government £2.5bn. It will cater for those misled by the DSS but the details of how it will work are still being sorted out. Those potentially eligible are married people who paid National Insurance contributions since 1978, and can prove they were misinformed on inherited Serps after 1986.
Relying on apathy
When the Labour Government came to power the information was corrected but for the intervening 10-year period some seven million people in Serps were none the wiser. Those people who are already receiving inherited Serps by the new deadline of October 2002 will not be affected by the changes, according to the Government.
The Government intends to allow all those who can prove they were misled to keep their full Serps entitlement but product providers say that the Government may be relying on apathy.
It is not yet clear what proof will be required to ensure that spouses will have their rights to 100% of the Serps entitlement after the death of the person in Serps.
For many people advice on the matter from the Benefits Agency may have been via a phone call and it is unlikely that many entitled to Serps would have kept a pamphlet on an issue from more than four years ago, Steve Cameron, pensions development manager at Scottish Equitable, says.
"We are disappointed at the approach that is being taken, primarily because it may lead to people getting into lengthy legal wranglings over whether or not someone can claim inherited Serps right. We would rather see money spent on provisions for the surviving spouse rather than subsidising legal fights," Cameron says.
The average loss will be £20 a week but in some cases it could be up to £100. IFAs may wish to suggest clients take out life cover to make up the amount that would be lost by the new rules.
For those who are young and are looking at quite a substantial Serps pension, then the loss of capital from the change could be provided for by using life cover, Cameron says.
The Government is setting up a new pensions directorate designed to deliver benefits and services to older people. The agency will focus on the needs of pensioners and pensions policy and will be distinct from the current Benefits Agency. It will provide all the social security services affecting pensioners from one point.
Susan Bell is the features editor for Investment Week
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