S2P - opt in? or out?

rjtyrell

Hi,

Just wondering if anyone can give me some advice.

I am joining my work stakeholder pension scheme and I need to decide weather to opt in or opt out of the State 2nd pension.

If I opt out I get money back which goes into my work pension and then does that mean I don't get a state pension when I retire because I have already had the money back as such?

If I opt in, there is a chance I might not get a pension in 30 years as it maybe means tested etc.

Any useful advice?

Thanks,

Richard

EdInvestor

rjtyrell wrote: »

I am joining my work stakeholder pension scheme and I need to decide weather to opt in or opt out of the State 2nd pension.

If I opt out I get money back which goes into my work pension and then does that mean I don't get a state pension when I retire because I have already had the money back as such?

There are 2 bits to the state pension - the basic and S2P.You would only be opting out of S2P, you would still get the basic. However opting out of S2P is being abolished from 2012, so you may not think it's worth bothering for the small amount of money involved.

If I opt in, there is a chance I might not get a pension in 30 years as it maybe means tested etc.

Who told you that? S2P benefits are being capped for high earners and increased for the lower paid/carers etc, but means testing is not in the frame for either pension, not least because it would be politically suicidal for any party that promoted it.

rjtyrell

Thanks for the reply Ed,

So in 2012 everyone will have to opt in to the S2P if I have read your post correct?

...However opting out of S2P is being abolished from 2012, so you may not think it's worth bothering for the small amount of money involved...

So for someone on a lower salary like myself (22K) it would probably make more sense for me to opt into this S2P scheme.

dunstonh

As ed says, the basic state pension will almost certainly exist in one form or another in 30 years. There is doubt on the second state pension as the Govt can and does play with that periodically. It has been reduced 3 times already retrospectively and a forth time will occur when the increase in state retirement ages takes place.

Contracted out rebates are higher for the next few years than they have been for a long time. If you are under the age of 43 and earning over approx 15k a year then you are certainly within the financial benefits of contracting out. Whether you prefer the investment risk of contracting out against the legislative risk of contracting in is a personal decision.

Contracting out does allow you to take your appropriate personal pension earlier than state retirement age. I get the impression you are young so you are looking at a state retirement age of 67 or 68 depending on your date of birth. So, do you want to have to wait until then to get access to the S2P?

Around half the people that contracted out are better off and half worse off. However, the financial difference is not great and the recovering stockmarkets have had an impact on that figure in the short term. Long term should see the benefit of contracting out be more than contracting in. However, that is still subject to investment returns.