Re: S2P Contract out?

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:

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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'.

Reply to
Gareth Kitchener
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states that for a male, you need to build up 44 qualifying working years for a full basic state pension, and at least 25% of that (11 years) to get a partial basic state pension.

If I have whether it would be worth contracting out on the current level of

Reply to
help

If you don't have 11 years worth of contributions, you won't get a BASIC State pension but I believe you will still get the second tier pension in respect of the years you did actually pay NICs. You would definitely get the rebate if you contracted out.

Reply to
Gareth Kitchener

Apparently, there is a state pension forecast service, but would they just assume you stay in the same job with a standard pay rise in projecting a pay rise or could I ask them to give me forecast if say

- I go and work abroad in 2 years' time

- I get a 50% pay incrase in 2 years' time

Does the forecase cover just Basic Pensi>

Reply to
help

I've not tried it but I'd expect it to assume you stay employed at the same level of earnings as currently. (ie figures would be in today's terms.)

I'd be very surprised if they were prepared to quote on 'what if...' scenarios.

Reply to
Gareth Kitchener

And Graduated Pension, if you are old enough.

Reply to
Terry Harper

They do cover some what ifs, e.g. early retirement, but not arbitrary ones.

Reply to
Stephen Burke

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