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August 24, 2005
S2P pension opt-outs may have lost out
The Financial Services Authority (FSA) has warned that people who contracted out of the state second pension (S2P) and paid money into a personal scheme, may receive a pension on average £4 a week smaller than those who stayed put.
Three million people have chosen to opt out of S2P, or its predecessor SERPS, and pay cash into their personal pension instead. Financial advisers widely promoted opting out as a way of increasing retirement wealth, but concern has been growing that this advice was wrong.
Last year, insurance company Norwich Union advised its pension savers to opt back into the S2P scheme.
The FSA investigation found that the effects of opting out depended on when individuals had opted out, how long they were contracted out for, their age, and the performance and charges of the personal pension scheme they then chose.
According to the FSA, people who contracted out in 1988, the first year that this was possible, can now expect a pension on average £4 smaller than if they had chosen to remain in SERPS. SERPS became the S2P in 2002.
However, people who contracted out for a five year period and then opted back in would on average be approximately £2 a week worse off.
The FSA will investigate if mis-selling has occurred, but said that relatively few complaints about mis-selling had been made to the Financial Ombudsman Service (FOS).
Posted by at August 24, 2005 07:18 PM
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