Contracting-out of S2P???

[markda]

Can anyone help me, this morning I recieved a wedge of information from my ex-employers pension scheme through my front door.

It states that I am currently contracted-out of the Second State Pension (S2P), to cut a long story short its asking me if I would like to *stop* being contracted-out or stay as I am.

I have read it three or four times now, still doesnt make any sence. I suspect this is childsplay, but can someone please explain this to me in english....

--Mark



>>> Edited by markda on Monday 17th February 09:30

[Tony Hall]

Basically, as I understand it, a Pension is something that old people are promised and will make their lives wonderfull but in reality will be made worthless by successive governments so they'll need to work forever.
But I might be a little cynical here!

[Maf]

This is roughly how contracting out works:

The state pension is made up of two bits, the basic state pension everyone gets if they have paid enough years NI contributions, and the State Second Pension (S2P, replacement for SERPS) which is an earning related top-up.

Contracting out, basically means giving up your S2P for some other deal. The deal depends on what kind of pension arrangements you have. Contracting out as a decision is only ever forward looking, i.e. shall I contract out for this year and future years, not should I have contracted out last year. Hence, given your “EX”-employer's scheme is involved, I am guessing it was a group personal pension arrangement under which you have remained contracted out, rather than some form of occupational scheme (like a final salary scheme say). Sorry, getting jargony now but it is difficult to comment without seeing the stuff you have got.

Anyway contracting out under a personal pension basically means you give up your S2P in return for the government putting some money into your personal pension pot (redirecting some of your amd your current employer’s NI contributions). Whether you would be better off depends on many factors like your age, what investment return you make on the money, what salary inflation does, what the price of pensions (annuities) do and of course if the government changes the rules in the meantime. Basically it is a gamble either way, c’est la vie! An independent financial advisor could help you with some projections.

Mat