Is it a good idea for individuals to contract out?

The broad advice used to be that young and better paid employees should opt out, while older and lower paid employees should stay in.

This is no longer the general view. The Financial Services Authority say, "An independent report which we published in August 2005 says that, in purely financial terms, most people who contract out or stay contracted out this year are likely to get a lower pension than if they were in S2P."

Some pension companies are even automatically contracting older people back into S2P rather than continuing to take their savings.

So you can contract out, but most experts think you shouldn't and you should beware anyone trying to persuade you to contract out. You should only do so if you have a very good personal reason.

You can download the following useful pdfs from the Pension Service and FSA websites: Contracted out pensions - Your guide and Contracting out of the State Second Pension