The Second State pension scheme (“S2P”), which replaced SERPS, the State Earnings Related Pension Scheme, is itself to be phased out in 2012. But meanwhile, those who have opted out of the State scheme and elected to apply the available national Insurance rebate to fund a personal scheme need to consider whether to remain contracted-out.

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The critical factor is the level of the NI rebate, and this has reduced to a level which in the view of most advisers makes contracting-out unattractive. The decision to contract back is easily made but must be notified to the Revenue before the end of the tax year.

On the positive side, it is proposed that as from October 2008 people who have already built up funds in contracted-out schemes should be able to transfer these into SIPP schemes and thereby avoid the investment restrictions which currently deny contracted-out funds access to many of the most popular types of investment.

Graham Thomas