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My relative received a letter from barclays where he has pension asking him if he wants to contract back into the state pension (s2p). At the moment he gets rebates paid on top of what he is contributing.
They are recommending that he should contract back in if he is earning over £13.5k and over 44, which he is for both.
I have recommended that he contracts back in and he has agreed. Can I ask, if he contracts in:
1 the current rebates that are paid into his barclays pension will stop and instead be paid towards a "new" 2nd state pension (he has always been contracted out"
2 he will eventually have 3 pensions when he retires; basic (based on NI contributions), barclays and the 2nd state pension.
3 is the potential for growth in the state pension less than the private one held with barclays but less volatile/risky?
and as I've said so many times before, you (or your relative) should not rely on any of the advice offered by others in this thread - talk to someone who specialises in pensions advice.
I understand. I'm not asking for advice, since the decision has already been made. I just wanted to see if someone could confirm the 3 statements above.
You're asking for comments on the "potential for growth"
That's not a statement, it's a request for an opinion.
I believe that the answers to your queries are:-
3. Yes. The potential for growth in a private pension is greater but seldom realised. I think that this is indicated by the payment of compensation to some people who opted out. When SERPS, as it then was called, was introduced it was possible for company pension schemes to opt out but not for individuals if their scheme did not opt out. The company for whom I worked decided not to opt out of SERPS, giving as their reason that it would be too expensive to fund the guarantees required if they opted out. Later it became possible for an individual to opt out. I do not regret my decision to remain in SERPS, now the Second State Pension.
laurie53, remove the "is" and "?" should do it for you.
natdoor, thanks for the comments. Like I said, the decision has been made and it makes sense for my relative to opt in because at an older age it is better to have security than risk.
The risk with the state scheme is that politicians can change the rules. Pensions are a long term commitment and a lot can happen in the in between years.
For what it's worth, I've just done exactly the same as your relative.
I have a stakeholder pension from a previous employer which was contracted out of S2P. I've recently taken the decision to contract back in.
As much as anything else, because of the current state of world equity and financial markets, the returns on equity-based stakeholder pensions are pretty appalling at the moment, thus reducing the value of the pension and negating or reducing the value of any rebates.
I've effectively opted to divert my rebates to S2P to top up my State pension.
It's always possible to contract back out of S2P in the future if your relative wants to.
The one thing to bear in mind is that you cannot draw your State pension until age 65 (for a man) but you can draw most 'private' or stakeholder pensions at age 55 from 2010.
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