State Second Pension and Contracting Out

whu

The scheme I'm referring to allows you to contract out of the SSP- it says that if you do you can have part of your and the employers NI contributions (protected rights payments) paid into the pension plan instead.

Is this a good idea or not.The person taking out the pension is nearly 41 and it says the govn is planning to stop people contracting out from 2012.

Thanks in advance.

dunstonh

Is this a good idea or not

Depends on your age, sex and earnings.

The optimal age to be contracted floats between 40-45 nowadays. Plus, as you say, we only have one year left. So, even if you get in just in time for the last rebate, it will only be 1.

whu

dunstonh wrote: »

Depends on your age, sex and earnings.

The optimal age to be contracted floats between 40-45 nowadays. Plus, as you say, we only have one year left. So, even if you get in just in time for the last rebate, it will only be 1.

Thanks.

Age- 41 in April

Sex- female

Earnings- approx 6k pmonth pre tax

Is it worth contracting out?

whu

Bump - anyone got any views

Thanks

dunstonh

Is it worth it depends on your definition of worth. You have one rebate left if you are quick enough. In the scheme of things it probably make around 10p a week difference in retirement.

Personally, I wouldnt bother if I was in your position as you are close to the point you should be back in anyway which makes the decision marginal at best.

jamesd

If the person will be able to take the income from the contracted out money before state pension age, ideally from 55, then it's possibly worth doing to help you retire before the state pensions start. If the person has no interest in this and doesn't already have a contracted out pension pot it's probably not worth the hassle. The contracted out rebate that's paid into the pension is something around £2000 a year for a woman at that age and income, though I haven't checked to get the exact figure so someone who does might correct it a bit.

I like the idea of being contracted out to get the extra flexibility of having the money available earlier but it really does mean using a pension that allows that. That can be any pension that allows contracted out payments, like the one from Hargreaves Lansdown. It's also highly desirable to have some experience of investments or interested in learning if not using the work option. The work one might take care of that, or offer a decent default option.

If the work scheme is defined contribution the most important thing I'd want to see done is learning about investments so that the money can be invested well. Possibly also paying in more money, either to the work scheme or another one, in part to exploit the 40% tax relief.

whu

jamesd wrote: »

If the person will be able to take the income from the contracted out money before state pension age, ideally from 55, then it's possibly worth doing to help you retire before the state pensions start. If the person has no interest in this and doesn't already have a contracted out pension pot it's probably not worth the hassle. The contracted out rebate that's paid into the pension is something around £2000 a year for a woman at that age and income, though I haven't checked to get the exact figure so someone who does might correct it a bit.

I like the idea of being contracted out to get the extra flexibility of having the money available earlier but it really does mean using a pension that allows that. That can be any pension that allows contracted out payments, like the one from Hargreaves Lansdown. It's also highly desirable to have some experience of investments or interested in learning if not using the work option. The work one might take care of that, or offer a decent default option.

If the work scheme is defined contribution the most important thing I'd want to see done is learning about investments so that the money can be invested well. Possibly also paying in more money, either to the work scheme or another one, in part to exploit the 40% tax relief.

She does have another contracted out pension and this is a work one which provides a default option.

She is 41 later this year.

Thanks for your thoughts.