NI - Contracting back in or out?

Hi,

I am self-employed, 39 and today I got a letter from my pension company - Equitable Life (I admit I stopped paying into them about 4 years ago now) - suggesting that I opt back into with regards to NI as opposed to my current state of being contracted out.

Does anyone have any views on this? The way that I am looking at general retirement at the moment regarding pensions, NI, etc, is that, well, it is a right mess with little if no safeguards as to what happens with your money. My current plan being to save as much as possible to buy a house in the next few years and then look at the whole retirement 'thing'.

Am I the only one who feels a mixture of confusion, anger, mistrust of both Govt & Pension firms and resentment with regard to retirement planning. In my early 30s I quite happily paid into a pension each month only to see both my Equitable and Standard Lie pensions go South in 2000/01.

Constructive comments would be welcome,

John.

Reply to
John Smith
Loading thread data ...

I take it that prior to becoming self-employed, you were employed by an employer who was operating a contracted-out scheme. Therefore you were getting the "contracted-out rebate" of 1.6% off the normal 11% class 1 NI rate.

But this rebate only applies to emplyees and has no relevance to you when self-employed. You're already paying only 8%, and, as I understand it, are automatically contracted out. I don't know what SSP (second state pension, formerly SERPS, state earning-related pension scheme) options are available to the self-employed. There's always stakeholder schemes, I suppose.

Reply to
Ronald Raygun

I'm wary of the state pension - its opaque to me, they take your contributions and then you just have to have faith that they'll pay out something competitive in 30 years time.

I'd rather have money in a private scheme with my name stamped on it for all to see.

Reply to
Geoff

See (from Money Which) Part I

formatting link
Part II
formatting link
Generally speaking, government-guaranteed state pensions are a bargain, and privatised ones are a scam. See what happened in Chile:
formatting link
(recent NY Times article) State pensions contain an element of transfer payments (welfare) as well as an insurance and annuity part. They are biased in favour of the low-paid (although Canada and the USA, in different ways, try to compensate for that and penalise certain double dippers: Old Age Assistance being separate (Canada) and the Windfall Elimination Provision reducing certain US annuities).

Reply to
sufaud

If you're self-employed you are not in SERPS/S2P and so contracting-out is not a relevant issue. You were contracted out, you say, prior to becoming self-employed, so you can't do much about that except move your fund to another company if that seems a good idea. You may have been contracted out via your employer's scheme or via your own personal pension. Either way, you can't contract back in again for those years.

If you were contracted out via your own personal pension, beware if you should become employed again because the status quo remains until you officially contract back in again using the appropriate forms.

Most insurance companies are suggesting that people (doesn't apply to you, as I've said) contract back in, but it's not a simple issue.

Rob Graham

Reply to
Robin Graham

The only thing guaranteed about a governement pension is that it will leave you grovelling in poverty.

Phil

Reply to
Phil Thompson

The point is to get that, and something else. Or else to live in North Wales or someplace where the cost of living is zero, because you grow what you need.

Clowns like you think the only place to see and be seen is London, or maybe Harrogate.

There are plenty of places where you can buy a terraced house for £10,000 and live free. But you and your ilk wouldn't have any of that. You've gotta be nearer to Bond Street.

Reply to
kuacou241

But surely one must also consider (as has been discussed here recently) the political risk i.e. if either the basic state pension and possibly the SERPS bit get means-tested one day, then the recipient gets shafted no matter what his contributions were.

There is no way around this, and I am not contracting back in for that reason. I am building up DIY investments; they will "never" be able to take those away, or means-test the return I can get from them (income and/or draw-down of capital).

Reply to
John-Smith

Beware the investment return assumptions (1%/3% real return) used in these reports are highly pessimistic and skew the comparison in favour of S2P as I mentioned in

I'm happy to stay contracted out to distance myself from the political risk. Also because the extra pension afforded by the S2P is so small.

Daytona

Reply to
Daytona

I fully agree.

But as I said in a previous post, because you are self-employed you're not in or out - you just don't get SERPS benefits at all. So you couldn't contract back in even if you wanted to.

Rob

Reply to
Robin Graham

Yes and no. Argentina forcibly converted private pensions into depreciating government bonds during their fiscal crisis a few years back. They nearly did the same to private savings but it was blocked.

Roland.

>
Reply to
Roland Watson

A fair point, but the UK is a lot less likely to go bust like Argentina nearly did.

The key thing however is that private investments are a lot more portable than anything to do with pensions, so if this sort of thing was clearly looming, you could do a runner. I bet you that the richest layer of the Argie population had their options well covered, with offshore savings etc :)

Same applies to a divorce. FAR more likely to happen to an individual than anything else (including bankrupcy) and while failing to disclose assets is obviously illegal...... it will be a big help if the assets are portable. Men with large private pensions traditionally get shafted most because the judge is likely to order a movement in other (more movable) assets in lieu.

So many things to consider...

I put the standard annual stakeholder allowance of £2800 into my PP (a SIPP with sippdeal.co.uk), pay up the NICs to get the basic state pension, and leave it at that.

Reply to
John-Smith

Admittedly yes. I was wondering how things would be in twenty years time when pension and benefits issues really come to a head.

I am contracted out, so the government pays my private pension provider a certain sum a year. My understanding of it was that it had to be paid into such a pension with the usual restrictions (i.e. you can't cash it in until old age). So, how would you do a "runner"?

Thanks,

Roland.

Reply to
Roland Watson

They will just means test the lot :) Whatever one thinks of the UK, the economic management (post 1970s Labour nutters that is) has been pretty prudent, regardless of the Govt.

You can't. It is with private investments that you can do that with.

Reply to
John-Smith

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.