Is it currently better to be contracted in or contracted out.....?

Question

I keep getting letters from my occupational pension provider asking me to contract back into the second state pension.

It seems a bit of gamble either way. They seem rather keen, which makes me instantly suspicious.

I can't give out too many details on "Answers" but I can say that I've little hope of ever joining a final salary scheme in the future, along with millions of other Brits - but I've worked all my life so far (allegedly), paying the usual percentages into occupational schemes along the way.

General answers will help. That's assuming that someone might actually be better off under either option.

To contract in or contract out.....? What to do, what to do.

Answer 1

Contracted out extra pension depends on Investments.

Contracted in the gov extra pension is at rate of inflation.

Answer 2

It depends how much risk you want to take with your pension plan (contracted out monies - called protected rights benefits).  Most companies are now warning people that they should consider contracting back in if they are currently out of the State pension (known as S2P) - particularly if you are in your late thirties or early fourties.  It is felt that the returns you may achieve by contracting out may not be as good as what you may get if you are contracted in.  HOWEVER, there are advantages to remaining contracting out - firstly, you are allowed to take 25% of your pension fund as a tax free cash lump sum which is not permitted when you are contracted in.  So, if you don't mind taking the risk on your pension fund and you want the flexibility of having a tax free cash lum sum at your retirement then stay out (you will also shortly be able to take the benefits at age 50 I believe) - if you are a cautious investor then contract back in.  To contract in you will need a HMRC form CA1543 - just complete it and sent it to your pension provider.