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What is a SERPS adjustment?

Redress Solutions


05 August 2021

If you’ve ever had a FOS decision letter requiring you to compensate an investor for unsuitable advice to transfer out of a Defined Benefit Scheme, you may have noticed a reference to a “SERPS adjustment”.  FOS will typically comment that you may wish to contact the DWP to obtain the investor’s SERPS contribution history, but stop short of explaining why this may be required or the situations in which it could be relevant.

SERPS stands for the “State Earnings Related Pension Scheme”, and was a portion of the state pension which was abolished as part of the reform of the state pension in April 2016.   The way that SERPS was calculated was complex but was, in some circumstances, affected by the pension that the investor had accrued in a Defined Benefit Scheme.  The mechanics of the interaction of the state pension with the occupational scheme pension are complicated, but in simple terms, the investor could have seen a higher state pension as a result of transferring out.

If this is the case then allowing for the change in the SERPS pension that arose on transfer out, can reduce redress and you should check with your advisor whether this is a consideration for your complaint.

It’s worth noting however that SERPS gains typically only have a material impact for investors who reached state pension age before 2016. This is because when the single-tier State Pension was introduced, transitional arrangements were put in place for individuals who weren’t yet receiving their state pension, and the impact of these transitional arrangements was to substantially reduce the SERPS gain.  Again, it is worth making sure that your advisor understands this complexity and is allowing for it appropriately in their calculations.

One final point to note is that in order to carry out the SERPS adjustment calculation, it is necessary to obtain information from the DWP and at present such information requests are not being processed. This means that if a SERPS adjustment will have a material impact on the loss assessment such that the advising firm is not comfortable for it to be ignored, then there may be a significant delay in settling the complaint and both you and the investor should be prepared for this, particularly as FOS will not require interest to accrue on the loss whilst information gathering from the DWP is in progress.   

OAC has been carrying out pension redress calculations for over 25 years.  We are specialists in transfer loss assessment and keep up to date with developments in redress and wider pensions to ensure that our calculations are in line with industry best practice, generating fair and robust outcomes for our clients.

Sarah Abraham

For more information
Sarah Abraham
Head of Redress Solutions

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