N.I Rebates - how do they work them out?

EMcG

Hello all,

I just got my annual statements for my personal pensions.

For my contracted out pension with Legal & General it seems that this year my N.I rebate comes to the grand total of zilch, nothing, nada, not a bean.

In previous years the rebate has ranged from £1292.92 (2001/02) to £895.05 (2003/04). I have been contracted out since March 1993.

Any idea how the Inland Revenue work out what your rebate should be?

When I rang Legal & General to ask this they said they had no idea and just processed whatever payments the I.R. sent them.

Any ideas Money Savers?

Thanks

Milarky

Your policy probably hasn't received last year's [2004/05] annual rebate yet - they don't start paying these until [earliest] August to [latest, around] December. [I see you had a payment for 2003/04 - which is the most recent year that I've had a rebate for also - so don't worry yet!]

The rebate itself is approximately the same amount as you would pay in National Insurance [around 11%*] for earnings between the Lower Earings Limit [of £4108 in 2004/05] and the Earnings Threshold [not sure but about £11,600 in 2004/05]. For earnings above that level you get one quarter of this percentage* - so only about 25% of added NIC - by way of rebate.

Taking your rebate for 2003/04, add about 3%* of the difference in your earnings last year [assuming your income rose] and this should be about right.

*the exact percentage is age-variable, so may be a bit less or a bit more than these amounts depending on your age

EdInvestor

http://www.guardian.co.uk/guardian_jobs_and_money/story/0,3605,1488711,00.html

Guardian has a mention today at the bottom of this report about a consultation plan on raising the rebates. :T

EdInvestor

BTW where do Moneysavers reckon is the best place to put this "free money" from the Government?

IMHO it needs a pension plan with a) a really good performing fund or two to invest the money in and

b)low charges

https://www.fsa.gov.uk/tables gives you some idea of typical charges which are not exactly very low.

But perhaps charges are lower than this for "single premium" pensions rather than "regular saving" pensions?

Unfortunately at present you're not allowed to put protected rights money in a cheap Sipp because the Government thiks you'll blow it.:rolleyes:

dunstonh

fsa tables are pretty well useless IMO.

That article makes no comment to the changes in contracted out funds happening next year. Many people will consider the ability to take contracted out funds at an earlier age than 65 (or 70 or 75 or whatever it is put up to) or have a tax free lump sum from them a greater advantage than having a little bit more income later in life.

isasmurf

The calculation of NI rebates to Personal/Stakeholder Pensions is extremely complex at the moment - more complex that it needs to IMO. It is made up of an age related rebate - which itself is three different calculations plus tax relief.

It works something like this:
Age-related rebate
x% of earnings between the Lower Earnings Threshold and Lower Earnings Limit (between £4,108 and £11,600 in 2004/05)
y% of earnings between the Lower Earnings threshold and the Upper Earnings threshold (between £11,600 and £26,600 in 2004/05)
z% of earnings between the Upper Earnings threshold and the Upper Earnings Limit (between £26,600 and £32,300 in 2004/05)

All these % vary with age (which themselves very between years!)
x% ranges from 8.4% for the youngest to 21% for the oldest (for most around 9-10%)
y% ranges from 2.1% to 5.25% (for most between 2-3%)
z% ranges from 4.2% to 10.5% (for most around 4-6%)

You then add tax relief on to each of those rebates.

It is all explained, with full tables of the percentages for each age, in this leaflet It is quite tough going due to the complexities of the calculation, but it gives some idea.

For Occupational Pensions it is much simpler - 1.6% of earnings.

EdInvestor

dunstonh wrote:

fsa tables are pretty well useless IMO.

That article makes no comment to the changes in contracted out funds happening next year. Many people will consider the ability to take contracted out funds at an earlier age than 65 (or 70 or 75 or whatever it is put up to) or have a tax free lump sum from them a greater advantage than having a little bit more income later in life.

Hi DH
I posted the article because it mentions the consultation about the rebates going up, which we were discussing the other day.

I agree that the changes will make contracting out more attractive, but I think we've agreed before that you need to put the money in a performing fund with low charges.

Do you have any general suggestions for a good home for a PR pension?

dunstonh

I agree that the changes will make contracting out more attractive, but I think we've agreed before that you need to put the money in a performing fund with low charges.

Do you have any general suggestions for a good home for a PR pension?

Charges do not make that much of a difference. You need to be in a fund with the potential to achieve around 3% more than inflation. Being in a pension which is 0.1-0.2% a year cheaper (than an alternative) but only has low potential funds is going to do you no good. That being said, its still 0.1%

However, if its an old legacy charging pension which hasnt converted to modern charging levels then you really shouldnt be putting any money into it, S2P, personal contributions or other.

To achieve inflation plus 3% over the longer term is almost certainly going to require medium risk or higher. Commercial property funds are probably the lowest risk of the funds (at low risk) but stockmarket funds would almost certainly come into play. Probably, probably, maybe, if I had a crystal ball

Suggestions for rebate plans? Scottish Life have a low reduction in yield (to around 6.4% with commission at the market average rate mentioned on the "menu" which compares with 5.9% on a normal 1% stakeholder). They also have a decent range of internal funds at 1% (before discounts) and a range of external funds (inv perp, fidelity etc) at slightly higher charges. It is possible to invest in a range of funds with them which include fidelity spec sits, inv perp uk equity, schroder hermes uk tracker, scot life property etc and still end up with a reduction in yield to 6.3% with commission paid. This is of course not advice but more a remark about a good value pension plan with low charges and a decent range of funds.

EdInvestor

DH

Thanks for that Scot Life info.Do you have a link to any more info on it?