If you are an employee, you can use a stakeholder pension
to leave (contract out of) the additional state pension. If
your stakeholder pension is contracted-out of the additional
state pension, both you and your employer will still pay National
Insurance contributions at the full rate, and the Inland Revenue
will pay a National Insurance contribution rebate direct to
your stakeholder pension scheme. The amount of the rebate
will depend on your age (the older you are, the higher the
rebate will be) and the amount of your earnings. The Inland
Revenue will also pay tax relief on your share of the rebate.
From 6 April 2002, a member of a contracted-out occupational
pension scheme earning £24,600 or less (in 2002/03 terms)
in a tax year will get a State Second Pension top-up for that
year. A person contributing to a contracted-out personal pension
earning less than £10,800 (in 2002/03 terms) in a tax
year will also get a State Second Pension top-up for that
year. The top-up reflects the more generous additional pension
provided
by State Second Pension.
If you are thinking of contracting out, you need to think
about whether the National Insurance rebate and tax relief,
paid into your stakeholder pension will give you a better
option than the State Second Pension.
If you are not sure what to do for the best, you may want
to get advice from a financial adviser. But remember, if you
see an adviser you may have to pay for their advice.
If you do decide to contract out, you will still be entitled
to any SERPS or State Second Pension that you have built up
before you leave.
If you are self-employed, you are not covered by SERPs or
the State Second Pension. So, you cannot contract out. If
you are self-employed, you will not receive a National Insurance
rebate.