Contract In or Contract Out?

wackojackouk

Hi guys

I have a personal pension set up with Norwich Union (was CGU) by a former employer. As all of the companies I have worked for don't contribute anything I pay approx £100 a month in for the past 8 years. At the time my financial adviser advised us to contract OUT of what was SERPS then.

I received a letter from Norwich Union around a month ago basically advising me that it would be better for me to contract back in to the govt 2nd pension as they think it would give me a better return.

Can anyone advise me which is probably the best thing to do?

Thanks

WJUK

ps - I also have a pension worth £900 (only did it for 6months) with another company (Fidelity) would it be worth transferring this or do they charge a lot to do this?

TMFTP

There's a lot (really, a LOT) of instability in pension funds just now.

Some funds had more exposure to the stock market - and so lost more in the crash - than others. If you're thinking about moving anything from one fund to another it's well worth getting independent advice from an IFA as to the relative security of the funds you're a - in, and b - thinking of.

You can ask for a transfer value quote at any time for the £900 pot to see how much they'd actually give you.

dunstonh

With regards to contracting out i would refer you to lots of recent posts asking the same question. With most of the responses in the pensions section coming from a small number of members, the answers wont be any different.

As for pension transfers, its usually best to seek advice as it needs to be calculated what the ongoing charges on the old plan are compared with the transfer penalties and the funds you are invested in and what are available. Older plans can often have benefits which are not present in more modern plans.

joshm_2

I'm no expert at this but I would say that if your investors (NU) are saying they don't think they can do a better job with your money than if it went into SERPS2 then you should probably take their word for it.
Personally, I have just opted back in to SERPS2 - the gamble is whether you think the state scheme will still be about when you retire, and if it is about, which vehicle would provide a better return. There are tales of the contracted-out payments made by the government being inaccurate, but at this point in time, and having spoken to several financial people about this, the trend seems to be to opt back in. Perhaps this depends on your salary, age, etc, but you don't specify this, and to be honest I'm just throwing my opinion in and should probably be ignored!

deemy2004

Contract back in, as changes made to the pension system are unlikely to effect retrospective contributions

mercedes23

Hi All

I have just been dealing with this with the IR.

IMPORTANT: Before you do anything about contarcting In or Out obtain your own forecast of state pension from the IR. Telephone 0845 3000168 or visit their www. It only takes 20 odd days and is a real eye opener.

Get hold of booklet NP46 "A guide to State Pensions" and also "Understanding your State Pension Forecast" in both of the books it explains about the ins and outs (sorry about pun) of contracting in and out and what benefits in addition to your State Benefit you are likely to get i.e. (a) Graduated Retirement Benefit (if you are that old like me to have contributed into them) (b) SERPs as they it used to be and the newly named State Second pension.

The rule of thumb appears to be nowadays if you old (over 40) contract back in and if are young stay contacted out.

Another excellent free guide is produced by TOWRY LAW GROUP called " Contracting Out Explained, You and the State 2nd Pension" available on 0845 788 99 33

As for transfering funds from one private pension pot to another depends if the new fund is allowed by the IR to accept transfers.

I honestly don't work for the IR but I have found over the past 12 years since I left the Royal Navy if you phone them they are more than willing to help and send you the booklets required.

dunstonh

I'm afraid that advice is rather outdated now and the other posts are closer the mark.

However, it may change again in 18 months if the rebate is increased as is being hinted and tax free lump sum will be available from contracting out but not contracted in.

mercedes23

Hi Dunstonh

Can you please explain what you mean by outdated, this is information I have received directly from the IR in the past 2 weeks. Including another letter off them this morning.

Much appreciate your thoughts Cheers

dunstonh

You cannot rely on the inland revenue to provide you information on contracting out. Only on contracting in. When contracting out you dont just have age and sex and retirement age to be concerned out but also charges and fund performance and the size of the rebate. The IR cant know those things.

There is very little official guidence issued. The Association of British Insurers (ABI) has said that is cost neutral at best by contracting out. They only really dangle the potential tax free lump sum from contracting out which you dont get from contracting in (and that isnt a dead cert yet). Most insurance companies will not say either way. Some have bulk contracted everyone back in.

The old rule of contracting out before a certain age is not currently valid.

mercedes23

HI Dunstonh

Sorry if I gave the impression the IR told you about precise details / benefits of / lack of benefits of contracting out , obviously they can not.

The latest "experts opinion" according to papers / media is to seriously consider contracting back in if you are over 40.

I have an dual appointment with both my accountant and financial advisor on Tuesday and on top of the list will be this question as I am over the 40 mark.

Best Regards

dunstonh

The latest "experts opinion" according to papers / media is to seriously consider contracting back in if you are over 40.

As already said, thats the old generic rule of thumb. Its not really valid today.

You should never take your advice from a newspaper. Its very easy to pick holes in what they say/recommend. The financial advisor you see with the accountant should say to you contract back in.