I am 45 years old. I contracted out of the state second pension (SP) at about 25. At the time, it was said to be to my advantage as the Government would subsidise with a bonus. After doing some research on the internet, it seems to advise contracting back in to get the full state pension at 65. I've never added to the amounts taken out. I recently had a letter from Aviva, formerly Commercial Union, which initially encouraged me to contract out, suggesting it would be to my benefit to contract back into the full state pension. What do you think I should do?
Twenty years ago, you contracted out of what was then the state earnings related pension scheme (Serps), now the SP. You may or may not have had proper advice at that time. If you were earning a good salary and could therefore achieve a substantial amount of national insurance rebate and personal tax relief on this rebate each year to be placed into your private personal pension (called a protected rights policy), then this was probably a good idea. It's impossible to say without knowing a lot more about your personal circumstances and future plans.
For some people, there are advantages to being contracted out of Serps and subsequently SP.
Purely from a financial viewpoint, the aim is to build up a higher amount of contracted-out pension than the pension you would have earned by remaining contracted in. Whether this comes about depends on the amount of money being paid into your protected rights policy by the Government and the associated tax benefit. It also depends on the returns your pension provider (in your case, Aviva) manages to achieve on your investment.
With the state pension schemes, there's no flexibility and you have to wait until you reach the age of 65 to get your pension. With a contracted-out policy, you can draw benefits as much as five years earlier, and this is the main factor that encourages many people to opt to contract out.
The SP scheme provides virtually no protection for dependants on early death, whereas your protected rights policy will pay the whole accumulated fund to your dependants if you were to die before drawing benefits.
When you do start taking money from your protected rights policy, you can take up to a quarter of the fund value in a cash lump sum which is tax free. The SP scheme doesn't give you cash sums (unless you defer taking your state pension but that's not relevant here).
Your private protected rights policy belongs to you personally, and many people prefer that to being dependent on the state pension schemes and whatever changes might be made to them now or in future.
Andrew Wilkins, a senior partner and pensions specialist at financial advice firm Philip T English, says: "Aviva has written to you to avoid the prospect of a future pension miss-selling scandal. They are correct to remind you about contracting back in because many feel that private policies, particularly at the age of 45 with only 20 years to go, have little or no chance of providing a better pension than SP. Clearly this depends on how much money has been invested in your policy and what investment returns have been achieved so far, together with what investment returns are achieved between now and access age, which is at least 15 years away for you at 60."
The benefits you have accrued so far with Aviva would still be yours and you can still have access to them from the age of 60 including the 25 per cent tax free cash lump sum. If you contract back in to SP your money will accumulate in SP until state pension age.
Get advice before you do anything, and if you have made no financial provision for retirement other than contracting out of the state second pension scheme, then you need to start planning now to put more money aside if you can or you could be short of money in your retirement.
I got married in a blue suede dress. Not very sensible, looking back, and of course it got splashed with food and had to be dry cleaned. It's come back looking worse than it was. The cleaners claimed to be suede and leather specialists but the stains are still visible and the colour looks different around them. They've ruined it. Is there anything I can do?
Did you have a discussion with the cleaner when you took the dress in? It's best to tell them what caused the stain and how long it's been there and ask them if they think the marks will come out. That way you know what the chances are. But even if not, you are entitled to expect the cleaners will use reasonable care and skill.
Think carefully about what you would like the cleaners to do. Perhaps they could clean it again or send it off to another specialist cleaner. Take the dress back and complain as soon as possible. If you get nowhere, complain in writing and explain what you want to be done. If you still get nowhere, check whether the cleaner is a member of a trade association such as the Textiles Services Association. If so, ask the association for a list of independent laboratories which can examine the dress to find out and report back to you on whether the cleaner is at fault. You'll have to pay a fee for the service but if the decision is in your favour the cleaner will be asked to refund you that fee along with any compensation. If the cleaner isn't a member of a trade association, you could both agree to use an arbitration service and to be bound by that decision.
If you don't want to settle the dispute by mediation or the cleaner isn't a member of an association your only other option is to make a claim for compensation through the small claims track at the County Court. It will be down to you to prove that the cleaner is at fault and you'll need an expert opinion to back up your case. Court really is the last resort and you have to be realistic about how much compensation you expect. Just bear in mind that even with an arbitration decision or a court judgment in your favour, you still have to get the money from the cleaner.
Do you need a financial makeover?
Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF firstname.lastname@example.org