are pensions complicated or what

ben2444

my understanding is:

when you start work you start paying NI contributions which are put towards a state pension and a state second pension

you can also have a private pension and opt out of the state second pension and have the money from that coming into your private plan along with extra contributions from your salary and / or employer

you can change your private plan if you want but absolutely no funds are available until you are 50+???

have i got the basics right ??? please some one clear this up for me...

i have another questions after once i got the basics sorted out!!!!!!! ! ! ! thanks

dunstonh

when you start work you start paying NI contributions which are put towards a state pension and a state second pension

Yes. Although you may not be eligible for a second state pension and even if you are, there is no guarantee that it will exist when you get to retirement. (self employed and usually those in final salary occupational pensions dont [in effect] get a second state pension).

you can also have a private pension and opt out of the state second pension and have the money from that coming into your private plan along with extra contributions from your salary and / or employer

correct.

you can change your private plan if you want but absolutely no funds are available until you are 50+???

Correct. Although, it will be age 55 from 2010. The Govt doesnt give tax relief on contributions and growth free of capital gains tax for people to then use it before proper retirement ages. At this time, pensions are also exempt from IHT.

Pensions are not that difficult. Sure there are a lot of rules and a lot of ways the pension rules can be used in non-retirement transactions. However, it is just a simple investment product. The ultimate long term plan. You pay this money in and you get tax relief. You invest it in a way that you can choose across a wide range of areas and at the maturity date, you can commence benefits by taking upto 25% as a tax free lump sum and the rest is used to buy an annuity which provides an income for the rest of your life.

Thats the simple way of looking at pensions.

Andy_L

ben2444 wrote:

my understanding is:

when you start work you start paying NI contributions which are put towards a state pension and a state second pension

Sort of. your NI contributions entitle you to a state pension. Your contributions go into the big pot at the treasury which is then used to pay out state pensions etc to existing claimants. Your pension will likewise be paid by future tax payers.

Andy

EdInvestor

That's a very good understanding ben, well done

It gets harder from now on though. :rolleyes:

ben2444

ok thanks -- my question now is....

when i was at a previous employer i started a private plan where the company would match any salary contributions you made to the plan

however soon after starting it i changed my mind and stopped contributions to this private plan. for a while i believe unknowingly i was opting out of the second state pension and some money from my national insurance was going to this private plan instead of my second state pension.

i have recently opted back into the second state pension so i believe this private plan is now dormant. there is not a lot in it anyway.

i really do not want this private plan any more as i have alternative ways i am planning to fund retirement. as i said theres very little in it so can i just tell them i dont want it? i dont want to keep receiving mail regarding this plan it is becoming a pain!

dunstonh

however soon after starting it i changed my mind and stopped contributions to this private plan. for a while i believe unknowingly i was opting out of the second state pension and some money from my national insurance was going to this private plan instead of my second state pension.

Shame. Stopping that was a bad move.

i have recently opted back into the second state pension so i believe this private plan is now dormant. there is not a lot in it anyway.

If you believe that contracting in is the right move for you and the benefits of contracting out are not appropriate, then fair enough.

i really do not want this private plan any more as i have alternative ways i am planning to fund retirement. as i said theres very little in it so can i just tell them i dont want it? i dont want to keep receiving mail regarding this plan it is becoming a pain!

Nothing you can do about it. They have a legal obligation to send you an annual statement and you cannot draw it out. You can asked to be removed from any marketing distributions but that is all.

EdInvestor

ben2444 wrote:

i really do not want this private plan any more as i have alternative ways i am planning to fund retirement.

I assume these alternative ways will not involve pension schemes?

If so and you have no other pensions apart from the state scheme, then eventually you will be able to take this pension in cash as a "trivial commutation", but not until you turn 60.At least that's what the new rules will say as from next April, at the moment you could take it in cash if you were over 50.

No doubt the rules will change again at some point......

ben2444

what about next time they send me mail returning it with "no longer at address" ? ? ?

LittleWoman_3

dunstonh wrote:

Shame. Stopping that was a bad move.

- Thats a matter of opinion! I wish I'd not wasted my and my employers contributions, 15 years paying into a personal pension, only to be worth 75% less than the amount paid in. I should have started a SIPP instead - but of course my IFA did not tell me about them when they were first available.

dunstonh wrote:

Nothing you can do about it. They have a legal obligation to send you an annual statement and you cannot draw it out. You can asked to be removed from any marketing distributions but that is all.

Thats not strictly true - if you have another pension (like say a SIPP) you can move it there

margaretclare

If you were in an employer's pension scheme where the employer matched you pound for pound, then not taking advantage of that was a bad move, because you were chucking away free money i.e. the employer's contribution.

If you're not in an employer's scheme then IMHO you should opt back in to the S2P. You shouldn't be out of both i.e. out of an employer's scheme and out of the state second pension.

Aunty Margaret

LittleWoman_3

margaretclare wrote:

If you were in an employer's pension scheme where the employer matched you pound for pound, then not taking advantage of that was a bad move, because you were chucking away free money i.e. the employer's contribution.

ALthough I would agree with this - have you asked your employer to pay into your own scheme? What normally stops them is the admin. My employer gives me a cheque once a year (simple admin), payable to my SIPP - so I'm not chucking away free money!

And opting back in - you should seriously consider this - do homework and find out what will happen if you opt back or not. Don't leave it - 05 Apr is not far away. Another year opted in will pass then, if you've not made any decisions.