Can you opt back in

mah_jong

This is my first post in this section...please be gentle!

Please can you help.......

I have been asked by a young friend (30) about pensions they are clueless and I am not much better!!! they chose a private pension a long time ago but the monthly aomount soon became too much so nothing has gone in for a long time! However they got a statement about it recently from the provider and it mentions they have opted out of serps..... can you get back in...what is best advice I can give..the pension in total is under 2000 at the moment.

TIA
MA

dunstonh

You can opt back in by contacting the pension provider and they will send the appropriate CA form.

Contracting out has been a bit out of favour over recent years but is coming back into favour again due to enhancements which come into place from next April.

EdInvestor

Hi mah-jong

If your friend is contracted out, then this fund may have been receiving money from the Government, even if your friend has not been paying into it.

Ask your friend what company the policy is with and what fund the money is invested in.

Regardless of what s/he decides about contracting in or out, it's always worth paying a bit of attention to get the money invested in a good fund where it will grow, rather than leaving it in some poor performer where charges will eat away the value over time.

Pal

dunstonh wrote:

Contracting out has been a bit out of favour over recent years but is coming back into favour again due to enhancements which come into place from next April.

This should, of course, have read: "Contracting out has been a bit out of favour over recent years but MAY come back into favour again if some proposed changes being made to the regulations come into place from next April."

dunstonh

Ok, I accept that ammendment. However, that particular area doesn't seem to be one under review at this time and we are getting ever closer to the point where things will be cast in stone.... at least until the act of parliament that will follow in 2-3 years time making a number of ammendments closing various loopholes.

EdInvestor

The changes that could make it more attractive than before are

1) You can take the money at 50 (not 60 as before), though this will go up to 55 from 2010

2)You can take 25% of the money in tax free cash

3)You won't any more have to buy a poor value index-linked annuity

Assuming these changes go through it's definitely worth considering still staying contracted out IMHO, as having a pension accessible earlier than official state retirement age (which could go up!) is a useful backstop if you find yourself suddenly "retired" a bit earlier than expected.:(

BUT, you need to make sure this money is invested so that it is making good returns, not languishing in some rotten old closed zombie fund paying no bonuses and with very high charges. If it's left in one of these funds, you could get a lot less than you would with the State second pension S2P, and you'd be better off to contract back in.

dunstonh

BUT, you need to make sure this money is invested so that it is making good returns, not languishing in some rotten old closed zombie fund paying no bonuses and with very high charges. If it's left in one of these funds, you could get a lot less than you would with the State second pension S2P, and you'd be better off to contract back in.

Absolutely right. However, i would just amend that last line to say that if you are in a high charge pension or inappropriate fund for contracting out that contracting back in isnt the only option. Switching to a lower charge pension and/or more appropriate fund is also an option.