Contracted out contributions

PaulCooper

I have around £40k of monies in a separate pension fund, all of the monies within this fund are from my decision to contract out.
Before I ask the provider (Aegon) what guarantees are applicable to this fund, what should I be looking for? I have in the back of my mind that these funds undertook to pay no less than if I were still contracted in---- Of course I could be dreaming.
I'm sure there are a few of you out there that can point me in the right direction
Thanks
Paul

Paul_Herring

Insufficient information at the moment.

Is the Aegon scheme a personal pension?

How old are you now?

I have in the back of my mind that these funds undertook to pay no less than if I were still contracted in---- Of course I could be dreaming.

I'm presuming this is a personal pension, in which case, that was the idea - you forfeit some of your pension (S2P in this instance) with the hope that investing personally you get back more than if you'd remained contracted in and took the S2P instead.

This all depends on how your £40K has been invested.

Before I ask the provider (Aegon) what guarantees are applicable to this fund

I suspect, if it's a personal pension, there will be no guarantees as such.

Note that S2P will be redundant soon in favour of the flat rate pension of £144/w, but note that those who contracted out will receive less if they don't have the full 35 years of 'contracted years' worth of NI (counting towards this total will be the years before you contracted out, and the years since they abolished contracting out) - this is a functional equivalent of reducing the old S2P.

Note also that your contracted out funds may be used to purchase an annuity/be drawndown from age 55 - your state pension (I'm talking about the bit you wouldn't have had, had you remained contracted in) won't be payable until your late 60's/early 70's.

dunstonh

Before I ask the provider (Aegon) what guarantees are applicable to this fund

Probably no guarantees as GMP would not apply to contracting out using an appropriate personal pension and aegon had typically stopped GARs when personal pensions were introduced (you tend to see them on Aegon retirement annuity contracts). Always best to ask though before making any decisions on something though.

I have in the back of my mind that these funds undertook to pay no less than if I were still contracted in---- Of course I could be dreaming.

That is not the case.
pros
Potential for higher income than state through investment returns
25% tax free cash on the fund value built up
able to commence benefits earlier or later than state pension age
death benefits are usually better
Not subject to retrospective legislation applied to contracted in benefits (which have seen 5 reductions retrospectively over the years)
Cons
Potential for lower income than state if investment returns are lower

PaulCooper

Thanks both for the replies, sort of what I expected really and yes I will ask them as you never know.
I'm 57
Something I don't understand in your post Paul, is the following

Note also that your contracted out funds may be used to purchase an annuity/be drawndown from age 55 - your state pension (I'm talking about the bit you wouldn't have had, had you remained contracted in) won't be payable until your late 60's/early 70's

I understand the bit up to 55, it's the underlined bit I don't follow

Thanks

Paul

Paul_Herring

PaulCooper wrote: »

Note also that your contracted out funds may be used to purchase an annuity/be drawndown from age 55 - your state pension (I'm talking about the bit you wouldn't have had, had you remained contracted in) won't be payable until your late 60's/early 70's

I understand the bit up to 55, it's the underlined bit I don't follow

I'm guessing your (state-)retirement age is going to be your 66th birthday.

1) Since you contracted out, you'll get slightly less than the '£144' from 2022, but you can vest your £40K any time from.. well you can do it now if you want (you could have done it from 2011.)

So you can get the benefit of that money now. If you want.

2) On top of that, if your weekly amount from that fund is greater than - you're definitely on top, and contracting out was a good thing.

3) Had you not contracted out, you couldn't do anything with money you hadn't collected and you would have collected the full '£144' from 2022. This would only be better if you get less from your £40k than the difference between '£144' and what you actually get.

That underlined bit was expressing the first part where you can start vesting your contracted out fund before your state retirement age; if you wish.

[ You'll need to adjust that £144 to whatever it turns out to be in 2022 ]


Not sure if that's cleared it up or simply made it worse

PaulCooper

Paul
Absolutely crystal
Thanks for adding the clarity

---

it's probably me being a bit dumb!
Yes, have just been advised state pension age is 66

Paul