Changes affecting contracting out...

Pal

All of those points are valid reasons why modellers can only provide estimates. Even the rate of return within the state system is impossible to estimate because the S2P calculation is (my memory fails me at this point) linked to either future average earnings growth or future inflation, both of which are unknown.

The main problems are investment returns and annuity rates. In a low investment, low interest rate economy it is difficult to recommend asking people to give up a salary related state benefit in return for a money purchase rebate that they invest themselves.

dunstonh

AFAIA, there is no generic model. Each provider seems to come out with a different amount even when looking at the same income/age.

Its not only future income and inflation but future rebate levels. There are just so many unknowns.

I was speaking with someone from Standard Life who said that the lump potential from protected rights was a issue that is on the table for discussion but is not an optioned that the Govt wants to change.

Here is a topic to consider:

When the majority were getting contracted out, the Govt was paying the Ni rebate to the insurance companies. Now the vast majority are contracting in, that rebate is significantly smaller.

Where is that rebate going now? on paper it goes into your s2p part of your state pension but that doesnt get the money put aside for it. Therefore the Govt is spending the rebate NOW. So basically its borrowing the money from the serps now and leaving a future govt to pick up the tab in years to come.

isasmurf

If thinking of contracting in I would at least find out the cut off date for doing so [It is likely to be some time after next April for the current tax year]

You can contract back in at any time, but it will not take effect until the start of the new tax year.

Everybody seems to have their own opinions on whether to contract back in. The advice on this board generally seems to be contract back in, and I've heard that several of the big providers have written to most of their contracted-out members to suggest contracting back-in. But, I've also read and heard other sources that say almost anybody over 50 should contract-in, anybody 40-50 should seriously consider it, and those under 40 well it depends on their attitude to risk. So it seems you pay your money, you take your chance, so to speak.

But one thought I've had, particularly for those in their 20s, and probably 30s is who is to say their will be a state second pension when they come to retire. For example, a couple of independent bodies have suggested abolishing it and pay every pensioner a flat rate. Indeed, I strongly suspect the Pensions Commission will recommend some kind of reform to the State Pension system when they report next year. And if S2P gets abolished in future if you let the Government keep your contributions towards your S2P then you get no benefit if their is a flat rate for all pensioners, whereas if you took control of that money at least it would be in your pension fund giving your a higher pension, and you'd still get the same flat rate as everyone else.

Milarky

But one thought ...if S2P gets abolished in future if you let the Government keep your contributions towards your S2P then you get no benefit if there is a flat rate for all pensioners, whereas if you took control of that money at least it would be in your pension fund giving your a higher pension, and you'd still get the same flat rate as everyone else.  

Bit of an assumption of course! Who's to say that a higher 'flat rate' pension [eg £105 pw in today's money - the figure often referred to] will be given to everyone at the same 'flat rate'?

The way they are most likely to rig [erm 'structure'] this is that you would build up the same proportion of the new pension for each year that the new rules operated, and would get whatever you had built up under the old rules [ie towards a current flat rate pension of about £80 pw], added at a lower rate, separately.

For instance you get about '1/44th' of £80 pw for each year you work today and could (perhaps) get the same '1/44th' of the higher amount of £105 under the new scheme. So no one would actually get the headline '£105' until they had worked for about 49 years entirely under a system which hasn't come in yet!

Future years' 'second pension' and the rebates that would have gone with them would stop, of course, but I simply can't see the govt turning a blind eye to the rebates already paid out. On the other hand they could just pay the £105 flat rate to everyone but add something for the value of 'SERPS/S2P' built up to those who had never contracted out. For those who had contracted out there would be no additional payment to the flat rate pension.

[It's totally speculative, though ??? ]

robnye

Yes, your details can be input into an illustration from a provider and they will show the DSS benefits lost against the protected rights pension benefits gained.   Whichever is the higher is the one you go for.

is there an illlustration calculator available on the internet at all?

But one thought I've had, particularly for those in their 20s, and probably 30s is who is to say their will be a state second pension when they come to retire. For example, a couple of independent bodies have suggested abolishing it and pay every pensioner a flat rate. Indeed, I strongly suspect the Pensions Commission will recommend some kind of reform to the State Pension system when they report next year. And if S2P gets abolished in future if you let the Government keep your contributions towards your S2P then you get no benefit if their is a flat rate for all pensioners, whereas if you took control of that money at least it would be in your pension fund giving your a higher pension, and you'd still get the same flat rate as everyone else.

is it not worth waiting to see what the pension commission do end up recommending then?

Pal

When changes have been made to the state schemes in the past, the level of pension already earned has been protected, with everyone moving to the new system for future accrual. Anyone remember EPBs?

If SERPS/S2P was abolished, I would expect the amount of benefit already earned to be protected, so SERPS/S2P would take 60-70 to completely vanish for everyone.

paul2468

I am 47, been contracted out for 12 years, most people on here seem to say get back in, how would i go about getting back in ? ??? or where would the best place be to get sound advice ?

Pal

Assuming that you are contracted out using a personal pension or stakeholder, just write to your provider telling them you want to contract back in and can they send you the forms you need.

If you want advice, you need to speak to an IFA who will be able to run the figures through a modeller.