Pension help please

Pal

How on earth did this discussion start talking about contracting out?


Upon leaving the public sector pension scheme, Chick (are we on first name terms? ) will automatically be contracted back in.

Unless she makes a positive decision to contract out then she will remain contracted in, irrespective of whether she starts to contribute to the stakeholder plan. Personally I wouldn't recommend contracting out to people who don't know exactly what they are doing).

CIS

You'll be contracted back in the abscence of joining any other schemes

EdInvestor

Personally I wouldn't recommend contracting out to people who don't know exactly what they are doing.

Strange isn't it, that so many people who don't know what they are doing are contracted out. I wonder how that happened? :cool:

Upon leaving the public sector pension scheme, Chick (are we on first name terms? ) will automatically be contracted back in.

Do you think a contributing factor might be that the people who run pension schemes don't bother to tell the members key facts such as that they will be automatically contracted back in when they leave?

Pal

I have no doubt that Contracting-Out will be another misselling scandal in a few years. The problem is that, back in the mid-late 90's everyone was working on the principal that a 10% annual return on equities was achievable every year for the next 20 years. When you drop the rebate figures into a projection tool on that basis then it was obviously worth contracting out.

Now, projecting using about 7% (when charges really become an issue), and based on the fact that investing these days involves making asset allocation decisions rather than just sticking money in a random equity fund and forgetting about it, the projections start coming undone.

Then you add on the fact that rebates are not keeping pace with falling yeilds and higher annuity costs.....

Contracting out is an idiotic policy for everyone except the Government itself, for whom it makes perfect sense.

Do you think a contributing factor might be that the people who run pension schemes don't bother to tell the members key facts such as that they will be automatically contracted back in when they leave?

Believe it or not, many scheme booklets do, although I dare say that the issue might be covered in more detail for some schemes. How many people read their pension booklets from cover to cover and ensure that they understand what it tells them? Virtually none.

chickaroonee

course you can call me chick! It's my nickname for my kitten, so it's funny to be called it here..

OK I understand what you are saying now, I have to agree with the contracting out bit - my pension scheme haven't told me what happens when I leave the scheme yet. But they probably do after you leave.

I was going to concentrate on paying off my mortgage rather than a pension for the next year or so, but now I'm not so sure with all this talk of contracting out and in..If I do this, should I join the stakeholder scheme anyway to get my rebates from the government? Or should I not contract out? I don't really want to contribute to a government pension, as I can't see me paying into it for very long at all. I think I will probably be back in the public sector within 5 years.

EdInvestor

There are some comments about the pros and cons of contracting in and outhere which may help.

Pal

chickaroonee wrote:

course you can call me chick! It's my nickname for my kitten, so it's funny to be called it here..

OK I understand what you are saying now, I have to agree with the contracting out bit - my pension scheme haven't told me what happens when I leave the scheme yet. But they probably do after you leave.

I was going to concentrate on paying off my mortgage rather than a pension for the next year or so, but now I'm not so sure with all this talk of contracting out and in..If I do this, should I join the stakeholder scheme anyway to get my rebates from the government? Or should I not contract out? I don't really want to contribute to a government pension, as I can't see me paying into it for very long at all. I think I will probably be back in the public sector within 5 years.

Chick

You can join the Stakeholder scheme without contracting out, but clearly you have to pay contributions into it. If you employer is not going to pay into it and you do not want to pay contributions then ignore it, and forget that anyone on this thread ever mentioned contracting out, because it really is a side issue.

Better to have a small state pension than an even smaller private pension.

As I said before, my theory is that people who don't understand contracting out shouldn't do it, and those that do understand it will probably realise it is a stupid idea for most people.

exil

I don't think contracting out is going to be a "mis-selling" scandal as the advice is now different owing to the govt moving the goalposts. By making SERPS (now S2P) more generous for low paid workers it has made advice given formerly (ie that it can be a good thing to contract out) now obsolete for some (but not all) people.

chickaroonee

Thanks ever so much you've been really helpful.

That thread was revealing, and as you say pal, perhaps not the best way to contract out of something when I don't fully understand it all. I will pay into S2P, pay extra off the mortgage and keep my public sector pension where it is for the time being.

Now I just have to work on the OH's finances and we're sorted, easier said than done!!!... :rotfl:

Pal

exil wrote:

I don't think contracting out is going to be a "mis-selling" scandal as the advice is now different owing to the govt moving the goalposts. By making SERPS (now S2P) more generous for low paid workers it has made advice given formerly (ie that it can be a good thing to contract out) now obsolete for some (but not all) people.

I use the term "scandal" loosely. The Daily Mail will consider it a national scandal, as will anyone else who has lost out because they didn't invest properly or shouldn't have contracted out in the first place. But whether anyone else does, or whether any compensation will ever be required, is anyone's guess.