As I understand it, contracting out of the second state pension would reduce NI contributions from 11% to 9.4%. I am 25 and currently pay about £260 per month NI. Am I likely to be better off pensionwise contracting out of this and putting the extra money into my stakeholder?
At 14:11:28 on 07/12/2005, snipped-for-privacy@aol.com delighted uk.finance by announcing:
I believe the general response to this question is: *shrug*.
cing:
Surely somebody here must have some idea though. From what I can tell, money I pay in through SERPS goes to paying the pensions of todays old people whereas opting the money into my stakeholder goes towards my pension.
Alex wrote
Yes, it's boring, isn't it. The contributions I paid whilst contracted into SERPS increases my State Pension by about 70%.
At 21:03:13 on 07/12/2005, snipped-for-privacy@aol.com delighted uk.finance by announcing:
It boils down to choosing between the following:
a) Contract in if you want a lower risk or getting a return, but don't mind waiting until you're 65 (or whatever they'll change it to by the time you retire) or any of the other rules the government of the day puts around it.
b) Contract out if you want complete control over how it's invested, ability to take a tax-free lump sum and draw it a decade or so earlier than the state pension, but are willing to risk the performance of the market on a tiny amount of money.
But then the rebate you get for contracting out is pitifully small and has prompted many to contract back in.
I don't think you can take a tax free lump sum from a protected rights fund, and I don't believe that is changing in April.
And the Turner report has recommended abolishing contracting out except for final salary company schemes.
At 22:10:37 on 07/12/2005, Andy Pandy delighted uk.finance by announcing:
Here are the arguments for each decision, as set out by my pensions advisor:
For Contracting Out:
For Contracting In:
The maximum you can get in the future is the equivalent of about £110 per week extra, which is 130% extra. Those retiring today get even more if they have always earned above the HEL.
In effect you would be swapping the investment risk for a political one.
The question that you should ask yourself is this: "Do you trust politicians of whatever party to look after your money responsibly for the next forty years?"
I find my decision in the matter to be very easy after answering that for myself.
At 08:19:15 on 08/12/2005, Anthony Cunningham delighted uk.finance by announcing:
Quite so.
Indeed, although the mitigating factor is the small level of rebate.
Yes, sorry, you're right. This change wasn't in the original A-day treasury document I read.
Except you face that political risk regardless.
Ask yourself this - have political actions by this government undermined the state pension or private pensions more?
I guess the 'risk' of politicians screwing us over is pretty much a certainty.
At least with contracting out I know the money is in a pot with my name on it. The risk then becomes a confiscatory raid by a future administration on the personal pensions of my generation. Now that's a surefire vote loser so I count it as being less than the risk that the politicians of twentyfive years hence will honour the promises of today's politicians.
I would say that between them the two main parties have comprehensively buggered pensions for just about everybody. The main exceptions being the very rich and MPs.
Terry Harper wrote
I think that we were only contracted in for about 10 or 12 years, but it has proved good value for me, especially when I was pressured into early retirement age 58, on a smallish pension. Thatcher did something unpleasant to SERPS though, didn't she, when the widow's share of her husband's SERPS was phased out, or down?
But that's exactly what NuLab did as soon as they got into power, and they've won 2 elections since!
If the basic pension is reduced or means tested, *that* would be a much bigger vote loser than some stealth like technical change which affects private pensions. People understand the basic state pension and nearly everyone gets it, people don't understand ACT etc.
A few years ago the basic state pension was increased by a trivally small amount - simply because inflation was very low that year - prompting newspaper headlines and Blair describing it as the biggest mistake of his first term to not over-index link the pension that year. They did increase it by more than inflation the following year. It was seen as a vote loser not to *exceed* the promises wrt the basic state pension.
Yup. But they've buggered private & company pensions far more than the state pension.
The good thing about SERPS is that unlike the basic state pension, previous years' entitlements are uprated by the increase in average earnings, not inflation.
They also phased in a reduction in the percentage to 20% from 25%.
Not really, they just taxed the growth. This is a very long way removed from taking the capital already accrued.
tim
You don't pay less NI if you contract out via a personal pension - which is what most people use. You have to contract out via a company scheme to get this lower NI.
Rob Graham
That was at the very peak of the unsustaintable Dot-Com bubble.
Not exactly, AIUI he taxes dividends on a year by year basis as the pension funds receive them.
My pension fund's growth has been negative since 1999, yet IIUC if they receive any dividends they get taxed on them.
GB continues to dip ino the funds and the providers continue to take their charges as the funds go down the gurgler, try and transfer out (up to age, about 58/9) and I would get hit by a 10% exit charge. :(
DG
You see the same NI deducted from your payslip, but the pension provider claims the rebate (employer's too) off the DWP.
It's the same with basic rate tax relief, you don't see less tax on your payslip but the pension provider claims basic rate rebate off the HMRC.
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