Another contracting in/ out S2P question

pamaris

I read most of the stickie at the top but I didn't find my answer (though it might be there).

Say you built up a small amount of additional pension. Then you join a personal pension and are contracted out of S2P. You get your "protected rights" accumulated in there a few years. So far so good.

What happens if you contract back in? Do you still receive those years of protected rights in your personal pension, or are you converted entirely to S2P? If you are contracted in some years and contracted out in others will you build up the state second pension while you are contracted in, and also receive your rebates while you are contracted out, so that in the end you get both? Should you be contracted out when you are younger (to benefit from capitalization, and contract back in when you get older (when you want to take less risk)?

Thanks. I read the government's leaflet on the topic and it is clear as mud.

dunstonh

What happens if you contract back in? Do you still receive those years of protected rights in your personal pension, or are you converted entirely to S2P?

You are only contracted out for the years you are contracted out. If you contract back in, you will begin to accrue second state pension benefits again. it doesnt impact on the protected rights in any way.

Should you be contracted out when you are younger (to benefit from capitalization, and contract back in when you get older (when you want to take less risk)?

Ideally yes. However, level or income is important as well.

Thanks. I read the government's leaflet on the topic and it is clear as mud.

Its an impossible subject to give absolute advice on. There are so many variables and so many changes that could happen that you arent going to know which option is best until you get there. Labour have been a liitle quiet on the subject as they have raped the contracted out rebate as an indirect tax.

pamaris

Thank you Dunstonh, your posts are very helpful! We got a leaflet in the post from Scottishlife saying that MAYBE we should contract back in, MAYBE not. To help us, they supplied a chart that had your age, and according to that your risk of whether your additional state pension will be worth more than your contracted out benefits or not. For all ages, the risk that you will lose money on your contracted out benefits is medium, medium/ high and high. None were low. Our age fell into medium. I looked at the key and it said "Medium– means there is a 50/50 chance your state additional pension will be higher than your contracted out benefits".

How is that supposed to be helpful! Why did they even bother sending the leaflet? Is it just to cover their butts so that if in the future S2P benefits are higher than contracted out benefits, then they can say, look we told you we didn't know which way to go.

I don't get it. They seriously need to simplify this. I think I know what we will do but only God knows whether it will work in our favor or not. I think DH will be contracted out until he's in his 50's then contract back in. Then maybe we can get the best of both worlds. Who knows.

jamesd

It's to cover them.

If your income is above say 30,000 and your investment risk level is at least medium, better high, and you're under 50 and planning to retire at least ten years from now, it's likely that contracting out is a good option. The lower the income, risk profile and number of years to retirement, the less likely it is to be good.

If the income is below 15,000, you're only comfortable in savings or want to forget about investments after making them then it's likely to be a bad idea.

In between you need to think more about it. It can't readily be simplified because it depends on investment return and that depends on how you invest. It also depends on how much the government provides as the contracted out rebate.

EdInvestor

pamaris wrote: »

I don't get it. They seriously need to simplify this.

Your wish has already been granted

Contracting out for money purchase pensions will be abolished in 2012.Can't get simpler than that.