Pension Planning - Contracted Out Stakeholder Schemes

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Contracted Out Stakeholder Schemes

For periods when you have a contracted-out stakeholder scheme or personal pension, you build up pension through the scheme in place of pension you would have had through the state scheme - either SERPS pension or, from 2002, the S2P.

Part of the National Insurance contributions you and your employer have paid is rebated and paid direct to your pension scheme.

The rebate is invested and must be used to provide `protected rights' which are:

• A pension for you This is payable from retirement but not before the age of 60. The whole fund must be used for pensions; nothing can be taken as a tax-free lump sum.
• A widow's or widower's pension This is whatever pension the fund will buy if death is before retirement and half your pension in the case of death after retirement.
• Pension increases once the pension starts to be paid at least up to inflation or 5 per cent a year, whichever is lower.

A contracted-out stakeholder scheme or personal pension will not, on its own provide much retirement income. Make sure you make other pension savings, for example through an occupational scheme if one is open to you or through further stakeholder schemes or personal pensions.