Bit of a pension mess

Retro23

Hi i'm in a bit of a mess with my pension status and could do with a bit of advise etc.

Ok when I was 18 I took out a pension with Legal and General and opted out of serps, aprox two years later and I find myself out of work for six or so months at which point the maximun amount of my earning I was alllowed to pay into a pension was lower than L&Gs minimum payment for pensions and had to suspend my payments.

when I went back to work I simply never even gave the pension a thought as I was just so glad to be back in work.... i'm now 33 and nothing has ever been done about the pension. Then three years ago it was decided between my wife and I that it would be me who gave up work to look after our second child as I suffered quite a bit from arthritis and my wifes job paid about a third more than mine.

Still nothing has been done about the pension apart from contacting them last year to see that the pension still existed etc. I do have savings in the form of ISAs etc but what I need advice on is what do I do with the L&G pension as I no longer have a regular income to pay NI contributions (though I do still get NI credits as I claim our child benefit) and so cannot make any payments to the pension and get no benefit from being in or out of serps. Until giving up work to care for our children I have probably only ever been out of work about a year in total in my life, six months of which was when I was 20

Will what little I paid in to the pension and the money paid into it because of opting out just dissapeer with charges or can I/should I opt back in to serps etc

Any help or info would be great thanks.

Steve

dunstonh

If you are not working, you wont be contracted out of S2P. You can formally request L&G to stop contracting you out so that it doesnt start again in the future if you do begin work again.

Most of the L&G plans have matched stakeholder charging so its unlikely you will have any concerns over charges.

Just because you are not working, it doesnt mean you cannot pay into a pension. Everyone under the age of 75 can pay upto £3600 a year into a pension irrespective of their status (a few exclusions but that involves works pensions and those earning above 30k).

Retirement planning should ideally be split between husband and wife to avoid paying more tax than is necessary. So, when looking at your situation for what you want both want in retirement, make sure you include yourself in the planning.

Milarky

If you are not working, you wont be contracted out of S2P.  You can formally request L&G to stop contracting you out so that it doesnt start again in the future if you do begin work again.  

Just to clarify that the way this works is that if you have 'home responsibilities protection' [HRP] status with no earned income you effectively rejoined the new state second pension - flat rate - as well as being credited for baisc state pension [BSP] at the same time. As worked out elsewhere this approximately doubles up the value of the BSP year by year. This applies even whilst you remain 'contracted out' since no earnings equals no rebate paid to the insurer. Instead, the value the flat rate of S2P collects as a 'credit' alongside the BSP

BTW, where does the current value of your pension fund stand in relation to the figure of £15,000? That's the amount below which the 'trivial commutation' rules can apply - giving you the option of a lump sum instead of an income from the fund you have built up. This figure is set to increase to £18,000 by 2009 and will probably at least go up in line with prices thereafter. You might want to consider the idea of trying to take advantage of trivial communtation at some time in the future and simply saving into ISA [etc] in the meantime. On the other hand, with child/working tax credits available for the next dozen years maybe you may consider that a pension [whether in or out of S2P] represents really good value anyway, since contributions are indirectly tax-relieved at typically 37% in addition to the 22% relief for basic rate taxpayers. [This 'relief' applies whichever partner is making contributions since tax credits are based on 'household' earnings/income less 'household' contributions to individual pension funds]

Retro23

Firstly thank you both for taking the time to reply.

Ok so in essence other than requesting L&G to stop contracting me out in the future theres no need to worry about the scheme etc

The fund is well below £15,000 so are you saying that I could opt to take a lump sum if I wished at retirement assuming it stayed below whatever limit is in place at retirement? if so do I need to do anything now or in the future to do this or is this something which is decided at retirement?

Just because you are not working, it doesnt mean you cannot pay into a pension. Everyone under the age of 75 can pay upto £3600 a year into a pension irrespective of their status

Thanks for pointing this out to me as it was the L&G advisor at the time that said I could not pay in more than a certain percentage of my income into the pension and who also said that I would need to suspend my payments untill I returned to work.

And thanks again for your time

Steve

Milarky

Yes, it's only since April 2001 that you've been able to continue to contirbute to a pension without any 'earnings-link' hence the advice was correct at the time I assume. The percentage link to earnings remains, so that you may contribute the higher of EITHER that percentage of your earnings OR £3600 pa. From April 2006 the percentage of earnings is due to replaced by the LOWER of 100% of annual earnings OR £200,000 pa OR £3600.  :o

As things stand, you don't have to top up your pension to the 'TC' limit but the limit applies to all exisitng pensions - not just one pension of several which a person could hold. Thus you could start a second pension if you wished and would benefit from 'TC' provided the combined figure stayed below this limit.

In theory, you could put all the money on the wife's pension instead of your own once you got close to this limit yourself. In return you could have your wife fund ISAs solely in your name [yes, I know you are each allowed £3000/£7000 pa but I am assuming limited funds for saving for sake of argument] Once you got to the age of 55 - and so could exercise the 'TC' option, you would then be able to move savings built up into your own pension again - and if ISAs still exist - switch other saving primarily into your wife's name. It's a very roundabout suggestion really, but I hope the details help you anyway  ;)

Retro23

Thanks for your time you have all been very helpful and have pretty much answered the question I had.

Steve