Leaving the additional State Pension

You can choose to take out another kind of second pension and leave the State Second Pension at any time during your working life. This is called ‘contracting out’. You can do this by joining an occupational scheme (if your employer offers one), a stakeholder pension or a personal pension. You should ask your employer if they have an occupational scheme. If your employer does run a scheme, you will generally be better off joining it. Some employers run schemes which you don’t have to pay into at all. For other schemes, you will need to make a contribution. Occupational schemes often provide extra benefits, such as:

• a pension or lump-sum payment to your husband or wife if you die early (and sometimes to your partner if you are not married); and
• a pension if you become ill or disabled and have to retire early.

You should check with your employer to find out what their occupational scheme covers. If you are in any doubt about the financial position of your employer’s scheme, you can contact the trustees for more information. You may also want to contact an authorised financial adviser. But, if you do see an adviser, you may have to pay for their advice. If you are a member of an occupational pension scheme, tax rules mean that you might be able to add to your pension arrangements by taking out a personal or stakeholder pension as well. You should check with your occupational pension scheme to find out if you can join a stakeholder pension as well.

Contributions you have already made to the State Second Pension are protected and will give you an additional State Pension when you retire. You can also rejoin the State Second Pension if it suits you better. You would need to consider your overall pension position in deciding whether to rejoin the State Second Pension. If your occupational scheme, stakeholder pension or personal pension is not contracted out, you can contribute to it as well as paying into the State Second Pension.

Even if you contract out of the State Second Pension, you may still be able to build up some rights to it. For the tax year 2004/05, a member of a contracted-out occupational scheme earning between £4,108 and £26,600 will get a State Second Pension top-up. A person contributing to a contracted-out personal pension or stakeholder pension earning between £4,108 and £11,600 in the tax year 2004/05 will also get a State Second Pension top-up for that year. The top-up reflects the more generous additional pension provided by the State Second Pension. Only earnings on which standard rate National Insurance contributions are paid (or are treated as being paid) count for these purposes.

If you want to know more about your options, please see:

• Occupational pensions – Your guide (PM3);
• Personal pensions – Your guide (PM4);
• Contracted-out pensions – Your guide (PM7);
• Stakeholder pensions – Your guide (PM8); and
• State pensions for carers and parents – Your guide (PM9).

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