Pension Question / Advice

JonathanA

Up until April 2007 I contributed to a group personal pension scheme operated by my employer. I was advised, several years ago, to 'contract out' and therefore each year, Norwich Union - the pension provider - has received an amount from the DSS (or whoever they now are) which has been invested into my pension fund. In May 2007 I left that employer and now work for a very small company that has no pension scheme (fewer than 5 staff so no legal requirement to do so).

I am now in a position where I want to start contributing to a pension scheme again & will look to find a good IFA who can advise. My question though is, given that I intend to start a pension before the end of the tax year, will I still be contracted out (& will the pension rebate go to the new pension company or to Norwich Union), or because I haven't been paying into a pension, do I have to 'opt out' again? As an add on, many people have said it may be better to contract back in (I'm 37) - is that the case and if so, why?

Thanks in advance for your thoughts
Jonathan

EdInvestor

What are the terms of the existing NU pension ( charges, choice of funds?) If it's a good one there's no reason why you can't just pay more into that one, no need to start a new plan.(It will convert from a GPP to a PP or stakeholder now that you've left the company. )

Contracting out for personal pensions will end in 2012 anyway, so at your age you may as well keep getting the rebates until then.They will be put into the same pension plan unless you direct differently or tell them you want to contract back in.

dunstonh

As an add on, many people have said it may be better to contract back in (I'm 37) - is that the case and if so, why?

Probably as they dont know what they are talking about. Sorry, thats harsh but it is almost certainly the reality.

Contracting out gets a higher rebate next year and the last time the rebates increase is age 43. So, you want to be contracted in around age 44-45. However, as ED says, contracting out is being abolished in 2012 (unless Govt delay it) so you will find yourself being auto-contracted back in at the right age anyway.

Contracting in/out is unlikely to see a significant difference in income provision one way or the other. Its generally considered to be cost neutral on average. This also reflects past research. The big gain for contracting out is being able to take your pension earlier than state retirement age if you wish and taking 25% as a tax free lump sum. You can do neither of those with your contracted in funds. There are slightly better death benefits too. The downside is just one. Investment risk. However, contracting in is not risk free either. You are subject to legislative risk. The Govt has reduced contracted in benefits 3 times retrospectively already and the increase in state retirement ages will be a 4th time.

or because I haven't been paying into a pension, do I have to 'opt out' again?

You dont need to pay into a pension to be contracted out.

Unless you contracted back in, you will still be contracted out.

JonathanA

Thanks for the responses. My NU pension started off as a Commercial Union (?) one and has ended up with Norwich Union as they bought out others. I'm not sure whether it is a good one or not, but I hope it is better than their admin - I only ever seem to receive annual statements if i request them. Thanks for clarifying contracting out, i will now find a good independent financial adviser to direct me through the maze as my level of contributions now will only be a fraction of what they used to be!