I am considering taking out a personal stakeholder pension. The pension
>allows me to "contract out" of the State Second Pension (S2P), formerly
>known as SERPS.
Yes... all Stakeholder pensions wil allow you to do this. Whether you
*should* is another matter.
I just wonder whether contracting out is worth it or not. What should I
>consider in choosing whether to contract out or not?
Get an IFA to obtain some figures for you to compare what you might get under a Stakeholder to what you are likely to get under S2P. You need to assess the "critical yield" - this is the investment return you need to achieve under the Stakeholder to match S2P. You then need to decide whether you can realistically expect to do better than that... if so, it's worth contracting out. (I personally doubt whether it would be worth contracting out on the current level of rebates though - they're not as generous as they used to be.)
1) I am now in my mid twenties and have been contracted in through National
>Insurance for the past few years. (Is there a 'formula', etc. to dictate
>what S2P I will get depending on my contribution and my final salary?)
See:
2) I am considering working abroad (i.e. leaving the UK for good) in a few
>years' time (i.e., I will stop NI contribution, and probably stakeholder
>pension contribution too).
Probably irrelevant... you assess whether to contract out on a year by year basis.
3) How tax efficient is using the reclaimed tax from contracting out to
>'reinvest' in stakeholder pension plan? (I am now a basic tax player, but I
>expect I may reach the higher rate tax bracket soon).
Your NI rebate is increased by the basic rate tax relief. You don't get higher rate relief if you earn more than the higher rate limit because the rebate only relates to earnings subject to the basic rate anyway.
4) Is the tax-reclaimed through contracting out invested seperately
>(accounting wise) from my stakeholder pension contribution? How could the
>final second stakeholder pension be 'projected'?
The tax relief is added to the rebate - it's all then invested together. The projected benefits are normally calculated on the basis of a real rate of return so the projected pension is in 'today's terms'.