pension service writes "you could become entiled to a higher pension..

Belair

EdInvestor wrote: »

AVCs are not related to contracting out of S2P. You will have to take the money from the AVCs at the same time as you draw your company pension.

I understand that.

You can't take your basic state pension until 2015 and if you have been contracted out you won't get an earnings related state pension, it is included in your company pension.

That's what I didn't know, thank you

What is the retirement date for your company pension?

With agreement, anytime after the age of 50 :T But, I want to wait till I am 60.

chesky369

But do you have to pay a penalty - 4% say - for retiring early?

Belair

I probably will have to pay a penalty, but, the amount I will save on not commuting every month will more than compensate.

DH will be retiring at the same time, - "we want to be to be togevver!":rotfl:

Decisions, decisions.

gatagirl1

I have heard that if you have been contracted out for a few years it would be best to go back in for the last couple of years before you retire as the amount of SERPS you receive is worked out on your average earnings whilst contracted in, is that correct???

dunstonh

gatagirl1 wrote: »

I have heard that if you have been contracted out for a few years it would be best to go back in for the last couple of years before you retire as the amount of SERPS you receive is worked out on your average earnings whilst contracted in, is that correct???

That is not correct. At least not in the sense your write it.

Over the years the age to contract back in has changed depending on the size of the rebate. It has typically been in the 40s, although IIRC, it was in low 50s in the late 80s and early 90s. It is age 44/45 from next year.

So, once you get past say 45, you should contract back in because it becomes increasingly harder, almost impossible for the rebate to be invested long enough to beat the benefits from contracting in.

gatagirl1

Sorry, I will provide you with the facts - I contracted out in 1988. Since then my earnings have risen significantly. I would like to retire in 2-3 years - aged 55. Would contracting back in see any increase in the amount of serps pension I will receive???

Milarky

gatagirl1 wrote: »

Sorry, I will provide you with the facts - I contracted out in 1988. Since then my earnings have risen significantly. I would like to retire in 2-3 years - aged 55. Would contracting back in see any increase in the amount of serps pension I will receive???

It ought to make no difference in theory but in practice you gain more from not being contracted out in later years. The rebates rise with age but don't take sufficient account of the higher cost of providing for the shorter periods of investment. There is also a delay between the actual costs rising (e.g. longevity increases) and any move by the government to raise rebates.

The 'rebate' part of your personal pension used only to be available from age 60 but I believe that post 'A' day it is now 55 - in line with your general fund. So whilst it seems highly likely that contracting back in for the final few years will prove beneficial in the shape of a higher state retirement pension you don't stand to get this extra until state retirement age (65) It's your call...

EdInvestor

gatagirl1 wrote: »

Sorry, I will provide you with the facts - I contracted out in 1988. Since then my earnings have risen significantly. I would like to retire in 2-3 years - aged 55. Would contracting back in see any increase in the amount of serps pension I will receive???

Are your contracted-out rebates going into a company or personal pension? If the former you may not be able to contract back in under the terms of the scheme.If the latter how is the PP performing?

jamesd

gatagirl1, your contracted out rebates are now capped at the level for a 52 year old:



Source: Scottish Widows, Beyond the teenage years: contracting out – revisited.

So, a big drop in your potential contracted out rebates is now starting to happen. However, contracted in money can't be taken until state retirement age.

Each year that you're contracted in will see an increase in the amount of SERPS-related pension you receive. Whether that is more or less than the amount you'd get from contracting out for that same year depends on investment performance. You'll probably lose quite a lot of SERPs-related pension - but still only a few Pounds a week - but gain overall from being able to retire six years earlier and start the lower pension then.

The safe course is to contract back in now, since that would probably cost a person earning close to or above higher rate tax less than 1.50-2 per week per year contracted out starting now (so say 4-6 per week in two to three years) in contracted out pension starting at age 55. If you do work longer it'll mean that you don't lose out on the SERPS-related pension contributions gaining you significantly more.

So, if your plans are pretty certain, getting a bit of extra pension at age 55 makes contracting out still seem OK to not too bad. If your plans are uncertain, the longer you go beyond 55, the worse the decision to stay contracted out becomes.

dunstonh

but still only a few Pounds a week

Probably not even that in reality when you consider that the difference between those contracted in or out from around 1988 is only a few pound a week (assuming bog standard investments of the era).