Sandra asks:

I have a dilemma in that I opted out of state secondary pension in 1989 and paid the money into a silly policy that was sold to me on a commission basis, for £30 per month.  I later realized that it wouldn’t be worth having a pension at the rate of £30 a month and I froze the policy in 1992 but did complete forms to enter back into the state system.  Needless to say the last 20 years, the best of my earning life I have been opted out. I assume I need to opt back in but where would I be better off pumping money if I have spare cash; to top up either of the schemes, state or private ?

When you opted out of the state second pension in 1989 you were, in effect, choosing not to build up an additional state pension (your basic state pension is unaffected by this choice) but instead to have a rebate of your National Insurance contribution paid to your insurer to invest on your behalf.  The aim was to build up a pot sufficient to give you a better pension than you would have been entitled to had you remained opted in. 

However, you say that in 1992 you did complete forms to opt back in.  If these were sent but not acted upon by the pensions company you should contact them to make sure that the failure not to do so was not to your detriment. 

Whether or not to opt in or out does, to a degree, depend on your attitude to risk and how much flexibility you are seeking.  There are lots of issues to take account of and you should visit the Pensions Advisory Service’s website where there is an online planner to help people make that choice.  Whatever your decision, the ability to opt out by using an individual pension plan will be abolished in 2012.

It sounds like you are now taking stock of your retirement plans.  Your first task should be to establish what your existing plans will likely deliver when you retire.  When you do this you should also find out how much your state pension is likely to be.  You then need to judge how much income you will need when you do retire.  Will your current level of savings give you what you need?  Is there a shortfall? 

If there is a shortfall you could consider paying extra contributions to your pension plan to bridge the gap.  If you are paying into a personal pension, tax relief will increase the amount you pay in.  Your pension provider should be able to give you a forecast to show what difference extra contributions would make, although you do need to bear in mind that any forecast is based on assumptions and is unlikely to be guaranteed.  There are some good guides that may help you available from the Pensions Advisory Service (and from Moneymadeclear. If you are at all unsure, you should consider getting independent financial advice. 

With regard to your state pension, it is possible to pay a voluntary contribution but only if there is a gap in your National Insurance record.  However, there are time limits in which a voluntary contribution must be made and it may not be necessary if you are already on course to get a full rate basic state pension. 

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