Author Topic: The new "contracted in" pension scandal  (Read 2428 times)

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The Prophet

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The new "contracted in" pension scandal
« on: December 09, 2011, 11:23:28 am »
There are changes to those who have 'contracted out' of the State Second Pension - previously known as SERPS
As of 6 April 2012, the Government is changing the rules, meaning contracting out will no longer be possible and everyone will be brought back into the State Second Pension (S2P).
However, the S2P is likely to be scrapped altogether after the standard pension is increased for everyone to around £140 on retirement regardless.
This extra government revenue will be used to fund the shortfall in today's pensions. It is questionable whether long term, this money would not have been better and safer in a private pension fund.

The change will only apply to new NI contributions made after 6 April 2012.
All previous contracted out rebate payments or 'Protected Rights' will remain in your private pension and will be treated as if you had made these payments yourself.
All limitations on contracted out payments will be removed.

Many of those who had contracted out would have been incorrectly advised by their pension providers to contract back in last year. 
This would have been a big mistake as remaining contracted out has the following advantages:
1. You can take a pension using the Protected Rights fund at 55, rather than whatever the state pension age will be when you retire.
2. You can take 25% of this as a tax-free lump sum -  this is not possible with S2P
3. If you die before taking your private pension the fund becomes part of your estate, not absorbed in government coffers.
4. And you know the rules will not be changed again!