Pensions Guide | Pensions Help Product Information

TheMoveChannel.com | National Insurance Rebate

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.