Pensions Contracting in or out? Have you made your decision?

Pensions Contracting in or out?

This is a subject that comes up quite regularly and involves your second state pension. Nearly everyone can expect to get a basic State Pension when they reach State Pension age, currently around 65, but this age is rising. You qualify for the State Second Pension (S2P, although it was known as SERPS) if you are or have been employed and earning above a certain amount on which you have paid National Insurance contributions (NICs). The government currently allows people to leave S2P by contracting out. If you contract out, the government will pay some of your National Insurance contributions (called a rebate) and income tax relief into a personal or stakeholder pension of your choice.

This money is invested to provide benefits at retirement instead of the benefits you would have received from S2P had you remained in the state scheme.

The government is expected to remove the option to contract out of S2P from 2012, but final salary occupational schemes will keep the option.

If you are contracted out through a personal or stakeholder pension, you should review your decision now.

Your decision about whether to stay contracted out will depend on, among other things:

• your personal circumstances
• how you wish to receive your benefits at retirement
• your attitude to investment risk

Although each client is different, we would normally recommend that you contract back into the State system and if you would like to achieve this change then we would recommend this is undertaken before the end of the tax year. We look forward to hearing from you if this is of interest to you.

This may also provide a great opportunity to review your pension planning at the same time.

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority.