Calculators

The Contracting-Out Dilemma

September 2007 (Part 1 of 3)

Clive Leah, Managing Director of Shirebrook Financial Services, gives the benefit of his extensive experience of this complex matter.

During all my years of service in the Pensions Industry, one particular subject has been the focus of concern for many of my clients: "contracting-out".

From July 1988 it has been possible to opt out, on a personal voluntary basis, of the earnings related tier of the State Pension Scheme; this earnings related tier was originally called the State Earnings Related Pension Scheme (SERPS) but from April 2002 this was re-designated the State Second Pension (S2P).

What do we mean by "Contracting Out"?

If you have contracted out, the Government pays a contribution each year into a qualifying pension plan of your choice, for each year that you contract out of the State Second Pension (S2P). The Government can make this contribution because it then is no longer liable to provide a pension under S2P for every year that you are contracted out.

Entitlement to the Basic State Pension is not affected by "contracting-out".

Over 4 million people contracted-out: a figure way in excess of the Government Actuary's estimate of the portion of the population for whom contracting-out might be considered viable.

Many people who contracted-out bought pension policies from the large direct service providers. Unfortunately, it is true to say that many of the home service providers have cut back their sales forces in recent times and the ongoing advice which was available from them on a personal basis, is no longer available.

Over the last 20 years life will have changed for each and every one of us in some way (that is inevitable) and the question, so far as "contracting-out" is concerned is whether or not it is still viable for those who have decided to contract-out. Should they remain so? Have our personal circumstances changed in such a way that we should reconsider our position job, income, health, marital status, separations and, of course, choice of retirement age?

The 2 key questions are:

Should I Contract-Out? Or, more likely, should I remain Contracted-Out or Contract back in to S2P (formerly SERPS)?
What has happened to the funds invested on my behalf?

Part 2: Why not consider the Shirebrook View?

The Contracting-Out Dilemma

Clive Leah, Managing Director of Shirebrook Financial Services, gives the benefit of his extensive experience of this complex matter.

What do we mean by "Contracting Out"?

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