Additional State Pension

Joey122

Ultimately what I am asking is how substantial this contracting out stuff is and whether its significant enough to do?

Thanks

noh

Joey122 wrote: »

What happens after 2009-2010 ? You cant contract out>? If you have already contracted out what will happen - Will you be forced to contract in?

Yes you will be contracted back in. The funds in your contracted out pension scheme will remain where they are but won't be added to by the government.
On your salary level the rebate will be slightly more £2000 a year.

Nigel

Joey122

Thanks - Thats really helpful - Are you sure you cant contract out now for the next thrity years and you will be forced to contract back in in 2010?

Seems quite silly really

EdInvestor

It would be preferable to get a forecast of how much your 2 state pensions are likely to be before deciding whether or not the rebates,privately invested, can better the figure.

www.thepensionservice.gov.uk


You may have to wait however as the computers are currently down for updating forecasts under the new rules.

For people retiring now,whoi have a full NI record since 1978 and average salary throughout, the S2P effectively doubles the state pension.

The scheme is being reorientated so that lower paid people get more and higher paid people less.Eventually it's probably that the two pensions will be merged into one significantly higher state pension.

Contracted out money is differently treated from ordinary pension savings, adding additional complexity to what is already an incredibly complex system.The claim is that this will be changed, but it does restrict how the money can be invested.

On balance I'd be inclined to contract out since you're well paid and young. I'd say the opposite if your salary was below average. Contracting out is due to end in 2012, not 2010. In 2010 the state pension entitlement rules will change, a separate issue.

noh

The pensions act of 2007 abolishes the right to contract out from April 2010.
See http://www.pensionsadvisoryservice.org.uk/miscellaneous/pensions_bill/ about 2/3 of the way down.
Thats one reason why it may be a good idea to contract out now because at least you will get some control over the money and have certainty. Future governments can and probably will change the rules regarding additional state pension.
More info here http://www.pensionsadvisoryservice.org.uk/pension_rights/contracting_out/

Nigel

EdInvestor

Contracting out for money purchase occupational schemes and personal pension schemes (including stakeholder pensions) will be abolished. Contracting-out certificates for these schemes will be automatically cancelled. The result will be that from the date of cancellation, members of money purchase schemes will be automatically contracted back into the S2P. This is likely to become effective from April 2010.

There appears to be some doubt about the timing.

dunstonh

It would be preferable to get a forecast of how much your 2 state pensions are likely to be before deciding whether or not the rebates,privately invested, can better the figure.

I would normally agree with that but the problem is that Joey earns over 30k and after 2010, he will be worse off under the new arrangements than the old. So, in reality, there is no way to tell what is best without actually getting to 2010 first.

The scheme is being reorientated so that lower paid people get more and higher paid people less.Eventually it's probably that the two pensions will be merged into one significantly higher state pension

If it does get merged into a single state pension, that would almost certainly make those that contracted out financially better off because it would require primary legislation to get the money back off you and would remove billions from the economy and create a worse financial hole than just leaving it alone. In all cases to date where the Govt has reduced benefits from contracting in, they have not claimed back any of the contracted out funds.

Of course, this is part of the guesswork you have to put up with and only time will tell.

Seems quite silly really

Yes it does. The whole idea of contracting out was that the Govt could reduce future pension liabilities by giving you the money now to put into your own pension. Therefore it wouldnt have to pay much larger amounts out when you get to retirement. The theory is quite sound.

Up until 1996 everyone that had contracted out was financially better off (source: SIB). Then Labour gets into power and starts reducing the rebates making it harder for the investments to beat contracting in. Plus the move from boom/bust, high inflation economy to a steady low inflation economy made old fashioned pension plans look obsolete and expensive and it wasnt until 2001 when that improved with much more modern cheaper plans (as well as better investment options). Then we had a major stockmarket crash which in the long run doesnt really make a lot of difference. Indeed, it can be highly beneficial if you are still contracted out or making contributions as you buy your units from that point much cheaper. In the long run it recovers and you make your money. Problem there was that everyone looks short term and many dont understand how it works and panic. By 2002, nearly everyone that had contracted out was financially worse off because of all that. However, now more than half the people are financially better off again and it wouldnt take much work by those that are not to do something about it. i.e. review their pension investments and plan to make sure it fits their needs.

There appears to be some doubt about the timing.

Yes. The Govt track record means that it likely to be 2-5 years late if past Acts have been anything to go by.

Joey122

Thanks all - So how o you contract out? Is it trick - Does it take a long time to set up?

Thanks

noh

Joey122 wrote: »

Thanks all - So how o you contract out? Is it trick - Does it take a long time to set up?

Thanks

Ask your current pension provider for the relevant forms. It should not take long to set up. The rebates should be paid into your plan once a year based on the previous years earnings. You will be able to contract out for this year 2007-2008 if you return the forms before April 2008.

Nigel

Joey122

I ll ask my HR team tomorrow - WHat is this scheme called ? opt out for additional pension? Is there a link I can send them which describes how to do this?