Protected Rights Etc

whu

Hi

I would appreciate some advice.As I understand it the protected rights part of a pension are the rebates from HMRC from contracting out and the rebates are invested into an individuals personal pension.Is this correct?

Thanks.

EdInvestor

Yes: the rebates can also be invested in an individual's company pension as well as a personal pension or indeed a SIPP (from next October).

whu

I have read and received a letter from legal and general saying that the advice is to transfer back in when aged 44 (I have read that it should be 40 for a female) - do you know if this is standard advice and if so what is the reason?

dunstonh

whu wrote: »

I have read and received a letter from legal and general saying that the advice is to transfer back in when aged 44 (I have read that it should be 40 for a female) - do you know if this is standard advice and if so what is the reason?

They are the current ages that are best to contract back in for medium risk (or lower) investors. Higher risk investors may want to stay out a bit longer if they believe their risk profile is likely to see higher potential returns. However, the rebate from those points makes it harder for investment returns to make up the lost S2P.

whu

thanks- can you please just clarify the last point - do you mean that keeping the money contracted out will make it harder to top up the second state pension?

dunstonh

The rebate from the DSS varies depending on your age. As you get older the amount of the rebate gets greater until you hit age 43. After that the Govt caps the rebate at 7.4% (this compares to capping at age 52 in 2003 and the rate being 10.5% - stealth tax anyone?)

Investments need time and the closer you get to retirement, the harder it is with a small rebate to make up the benefits that would be lost if you were contracted in. The age has varied over the years but between 40-45 is the time currently but has been as high as low 50s in the last 20 years.

whu

thanks - does that mean then that you are better off contracting back in (assuming medium risk profile) at the appropriate age as the pension could be worth more than contracting out with the lower cap rates?is there a cap on the contracting in sums that can be paid in?

EdInvestor

Yes.You don't actually pay in to the state secoind pension, it is done via your NI contributions. If contracted back in, there are no longer any NI rebates paid out.