National Insurance Refund

Bristol_Gal

Hi Everyone!

I've seen a group on Facebook and a couple of websites about National Insurance Refunds.

Basically you have to apply before 5 April 2009 for all your National Insurance Contributions to be addded/transferred to your own pension scheme.

Has anyone heard about this scheme? With things the way they are I can see it as a gamble either way.

Any advice, guidance or opinion on this please?

Thanks in advance

mrdtrotter

Call me ignorant but it does sound like typical facebook twoddle....

Aegis

It's called "opting out" of the state second pension, and you only get some of your contributions back, not all of them by any stretch of the imagination. It also means that you aren't eligible for that year's contribution to your additional pension.

I've just opted out myself. In my case it's because I want the added flexibility of being able to take my benefits when I want, and because I believe that my own investments are likely to result in a better return than the government will be able to give me on retirement.

jem16

Bristol_Gal wrote: »

Hi Everyone!

I've seen a group on Facebook and a couple of websites about National Insurance Refunds.

Basically you have to apply before 5 April 2009 for all your National Insurance Contributions to be addded/transferred to your own pension scheme.

Has anyone heard about this scheme? With things the way they are I can see it as a gamble either way.

Any advice, guidance or opinion on this please?

Thanks in advance

Contracting out of the 2nd state pension allows a refund of part of your NI contributions into a pension scheme of your own choice. It is certainly not all, just a small percentage.

mrdtrotter

So what are the advantages of it ? would i pay less NI, can I opt out and not have a penson at all ?

Aegis

mrdtrotter wrote: »

So what are the advantages of it ? would i pay less NI, can I opt out and not have a penson at all ?

The advantages are that it's now treated the same as any other personal pension, meaning you can take the benefits any time you can take a personal pension. You also get to manage the money yourself rather than relying on the government giving you a good deal for your cash.

The disadvantage is that you don't get the benefits of that year's national insurance contributions when it comes to the state second pension, meaning your state pension will be less when you eventually retire.

Whether it's the right thing for you to do is entirely down to your circumstances.

You can't opt out and just take the money, it has to be refunded into an appropriate personal pension.

Debt_Free_Chick

mrdtrotter wrote: »

So what are the advantages of it ? would i pay less NI, can I opt out and not have a penson at all ?

No you wouldn't pay less NI. You pay the same NI but HMRC transfer part to a pension plan of your choice.

In return, you lose your State Second Pension (S2P) for that year - it's replaced by whatever pension you ultimately get from the plan that the NI were transferred to. Whether that plan pays you more than the S2P you've lost depends ..... on how the investments inside the pension plan grow and the cost of buying an annuity when you retire.

Plain facts here

Think of it as a gamble. But you need "the odds" in order to decide whether or not to place a bet. One way is to get an illustration from a pension provider - the FSA pension calculator doesn't seem to be working at the moment.

jancee_2

Debt_Free_Chick wrote: »

No you wouldn't pay less NI. You pay the same NI but HMRC transfer part to a pension plan of your choice.

You do pay less NI. You pay 11% of earnings over the threshold if contracted in, but only 9.4% if contracted out.

Debt_Free_Chick

jancee wrote: »

You do pay less NI. You pay 11% of earnings over the threshold if contracted in, but only 9.4% if contracted out.

Only if you're contracted out via an occupational pension scheme.

If you're contracted out via a personal pension (which is what the OP is referring to), you get no saving in NI. Instead, HMRC pays the NI rebate to your personal pension plan.