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Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Opting out of S2P (second state pension)
A Guide to Opting Out Of S2P
(Second State Pension)

There has been a lot of talking about opting out of S2P. However, in recent years, employees all over the UK have been advised to opt back into or remain with the State Second Pension or S2P because they will receive more income in retirement as compared to other private pension schemes.

What is the State Second Pension?

The State Second Pension or S2P is a top-up pension paid by the state in addition to the basic state pension. S2P replaced the previous top-up state pension, the State Earnings Related Pension Scheme, or Serps.

The Second State Pension aims to provide a more generous pension to employees with low and moderate earnings. Any pensions previously stored in Serps are protected.

Who is entitled to State Second Pension?

Employees who are entitled to S2P fall into the following categories:

  • Those who are employed and pay qualifying Class 1 National Insurance contributions, which means they have average earnings of at least £82 per week are entitled to S2P.

  • Those who qualify for Carer's Allowance, Income Support as a carer, or receive Child Benefit for a child under 6, will receive credits for S2P including the basic state pension.

  • Those who qualify for Home Responsibilities Protection, which covers mothers of children under 16 and some carers, are qualified for S2P.

  • Those who qualify for long-term Incapacity Benefit or Severe Disablement Allowance may receive S2P depending on their personal circumstances.

These are groups NOTentitled to S2P:

  • Those who are self-employed

  • Those who receive Jobseeker's Allowance

  • Those who receive some other disability benefits

How much is State Second Pension?

The sum you will receive in S2P payments varies depending on:

  • The total amount you earn over your working life

  • The total number of years of qualifying National Insurance contributions you have accrued

If you wish to find out how much you can expect to get in S2P payments in today's money, you can contact The Future Pension Centre at The Pension Service for a personal forecast.

How does State Second pension work?

In today's figures, this is how S2P would apply to you:

  • If your earnings are between £4,264 and £12,100, the S2P treats your earnings as £12,100, which means you would receive a higher pension than your National Insurance contributions would provide.

  • If your earnings are between £12,100 and £27,800 per annum, you will continue to receive an increased amount with State Second Pension; however, the amount lessens the more you earn.

  • If your earnings are between £27,800 and £32,760, your S2P is based entirely on your wages.

  • The S2P is capped at earnings of £32,760.

What are the benefits of S2P?

While there has been much talk about opting out of S2P, many experts and major insurers believe that you will be better off staying with S2P or opting back into S2P because the National Insurance rebates being paid into private personal pensions are not significant enough to match the pension you could receive from S2P.

What are the benefits of opting out of S2P?

  • Under existing regulations, you are allowed to take up to 25 % of your opted-out personal pension fund as a tax-free cash lump sum if you'll be opting out of S2P.

  • By opting out of S2P, you protect yourself against any governmental-cut backs on top-up pension benefits.

Is it possible to switch back into State Second Pension?

If you are opting out of S2P, but want to opt back in, you can do this by contacting your pension company. However, be aware that you can only opt in and out of S2P for full tax years, which is from April 6 to April 5. An important point to consider when opting out of S2P is that once you have opted out for a particular year, that amount will remain outside the State Second Pension system.

Learn more about pensions

 

 
 
 
 
 
 
 
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