Is this right for me?
Claiming a National Insurance Rebate (Contracting Out) is not right for everybody. There are a few factors to consider before making the decision. Some people may be worse off by claiming the rebate, while others will benefit, and if you are in doubt get advice. The main influencing factors for determining your decision are:
- Age. The older you are the less likely this will be beneficial as there are fewer years till retirement. This is especially true after age 43 as the government’s rebate stops increasing after this age.
- Income. The higher your income the more beneficial claiming the rebate may be. This is because the government will be moving to a flat rate scheme post 2012. If you earn under £13,000 per year this may not be right for you. If you are a higher rate tax payer there is a greater likelihood that you will benefit from Contracting Out in the future.
- Retirement location. If you expect to retire outside the UK, US or EU you are more likely to benefit from the rebate as the government will not increase your pension with inflation outside these jurisdictions. By taking the rebate you have a higher probability of getting a better return.
- Investment Risk. If you are a conservative investor and do not like investment risk it is more likely that you should not take the rebate. Taking the rebate means YOU are in control of the investment decisions.
- Trust in the Government. Your belief in the Government's ability to fund your Second State Pension in the future will influence your decision slightly. Sceptical investors will prefer to take the rebate.
These factors may also influence your decision to contract out or not
| Factors to consider when Contracting Out (claiming a Rebate) |
Factors to consider when Contracting In (not claiming the Rebate) |
| You can take the pension benefits from age 55. |
You can only receive benefits from age 68 |
| At retirement you can take 25% of your pension as a tax free cash lump sum |
No lump sum allowed |
| You are in control of your pension |
The government is in control of your pension |
| As you are in control of the investment there is investment risk and your investment may go up or down. |
There is no investment risk as the government pension pays out a set amount according to a formula |
Please note: the decision to take the rebate is yours. This website only provides information and does not intend to make the decision for you.