Opt out of SERPS/S2P?

dunstonh

If you want to get an idea of the problems when dealing with contracting out, read the following article published this week.

The Association of British Insurers chairman has effectively washed providers' hands of contracting-out misselling, saying responsibil- ity lies at the door of advisers.

Speaking at a Treasury select committee meeting this week, the ABI's Keith Satchell responded to MP's concerns about the potential misadvising of some groups to contract out, saying adv- isers handled the majority of this business.
However, the ABI chairman's attempts to blame the advice sector for any potential consumer detriment in contracting out have been rejected by a senior Treasury select committee member.
Labour MP Jim Cousins said this argument was a "cop-out" faced with the potential scale of the problem - with up to £11bn contracted out each year - and a lack of clarity as to whe- ther it has been in the consumer's interest.
Satchell admitted that providers do give some kind of guidance on the issue but emphasised that most of the business took place in the adviser arena.
He said: "Most of this business was transacted in the independent adviser marketplace. Providers give some sort of guidance but we are not the main sponsor."
He said clarity was required between what the distributor is responsible for when giving advice to a cli- ent and the type of guidance that product providers give.
Money Marketing repor- ted last week that the pens- ion industry was trying to fend off a £3bn review into contracting out which could hit advisers and providers.
Cousins said: "That is a bit of a cop-out. This is a big component of the welfare system and it is important to be clear whether this huge scale of investment of contracting-out rebates has been good value for the consumer." Aifa director general Chris Cummings says: "Not forg- etting successive Governments' responsibilities, a simple review of figures shows that the majority of business was conducted by tied adv- isers rather than IFAs, a point that seems to have been forgotten by some."

So, one party blames IFAs, the other blames tied agents, the other blames the insurance companies and another blames the Govt.

Personally, I put a lot of the responsibility with the Govt for reducing the rebates (basically a stealth tax) to a level which is too low to make contracting out cost effective for most. You could also blame the FSA for not issuing any guidence when it has been known for about 3-4 years that no-one really had a clue which option was best. Insurers also stopped publishing the pivotal age charts which advisers had always used in the past. That left advisers without clue what to do. So most did nothing.

Also, the decision to contract in/out is an advice one. Tied agents covered the majority of contracting out decisions many years ago. However, most of these tied salesforces have gone and the insurance companies involved arent able to give advice. So they either bulk contracted everyone in or told people to get advice from an IFA. Of course, most people ignore those letters and even if they did get advice from an IFA, the IFA was probably unsure what was best as no-one was publishing any information.

As it happened, the FSA also stated that bulk contracting everyone back in wasnt a good idea either as some people are better off contracting out and the decision should be based on the individual and not the bulk. So, how does an insurance company without advisers give advice without breaking FSA rules?

...they are all going round in circles with their heads buried in the sand pointing their fingers at everyone else.

EdInvestor

...they are all going round in circles with their heads buried in the sand pointing their fingers at everyone else....

It's quite amusing trying to imagine what that might look like

jim77_2

re. those considering contracting out/in
Dont listen to those saying contracting out is always bad...as already mentioned above there are many factors to consider...but it should always be a personal call based on individual circumstances.

Personally, I actually think that those contracting back in are the risk averse, who are actually taking a very risky decision...do people honestly believe that some government in the future will not try to get out of their obligations regarding SERPS/S2P.... I'd rather take my chances with the stock market for the next 30 years thanks

dunstonh

http://nma.citywire.co.uk/News/NewsArticle.aspx?VersionID=86259&re=519&ea=94300&XDU=a82bfe92-1abf-478c-a706-4b26472a01a5&XDS=O&XDNG=True&XDKL=0&XDURL=http%3a%2f%2fnma.citywire.co.uk%2fNews%2fNewsArticle.aspx%3fVersionID%3d86259%26re%3d519%26ea%3d94300&NewsPage=3

Key point:

The scheme is likely to benefit lower earners at the expense of higher earners who will still pay the same national insurance contributions but for less benefit.

That means that contracting out for higher earners is now more attractive again and assuming it is back dated (which all previous amendments to the second state pension previously have been), that means that those higher earners contracted out are likely to be better off contracted out than in.

This is one of the key reasons for contracting out. The Govt can play around and remove the second state pension if they want to. They cant with the funds you have contracted out with though as that would require primary legislation and they have never clawed back contracted out benefits when the have reduced contracted in.

EdInvestor

The Govt can play around and remove the second state pension if they want to. They cant with the funds you have contracted out with though..

Maybe the Govt can't play around with the contracted out funds, but the insurance industry sure can

How many people have got contracted out money invested in old With-profits pensions which have now turned into zombie funds mainly invested in bonds?

A lot.

How many have have been told their money is no longer growing as they thought in the stockmarket, but is sitting in low growth bonds ands more than likely getting eaten away by high charges?

Very few, if any.

If people don't move these old contracted out pensions, they will be virtually worthless at retirement.Contracting out is fine as long as you pay attention to what is happening to the money.

dunstonh

No-one is forcing people to invest in those funds. People have choice with the contracted out funds. They dont have any choice with contracting in.

wannabewealthy

I was contacted by a firm who said they knew (not sure quite where from!) that I'd contracted out of SERPS and asking whether I'd contracted back in (I have). they said that firms that have sold policies re opting out are trying to get people to opt back in asap so that they don't have to offer larger sums of compensation. person ringing said I might be entitled to betweeen £700-1,000 for each year I opted out. I haven't heard anything else about this and am floundering as to what to do. they are offering to act for me for £500 admin charge and 12% of any compensation received but to be honest I'm sick of paying people to do this sort of thing. does anyone know about this and how to go about any potential claim by myself??

thanks all

dunstonh

wannabewealthy, the firm is called Morgan Green and they are dodgy as hell. Avoid them like the plague.

Think about it logically, how can they tell you that you have been mis-sold without knowing anything about your policy. Contracting out or in is not a straightfoward mis-sale or not. There are pros and cons to contracting out and there is no nil risk option.

This company want to take money upfront from you to send a letter which will almost certainly result in the complaint not being upheld. You would have wasted £500 for nothing.

Even if they are successful, the redress payable doesnt come to you. It gets added to the pension. So Morgan Green will then bill you for 12% plus VAT of the amount of the redress which will have to come out of your pocket, not the pension.

In 1996, the SIB (a regulator before the FSA) deemed that everyone that had contracted out of serps was financially better off for doing so. The stockmarket crash came in 2002 and some people are now financially worse off. The figure is believed to around £2 a week worse off. However, much of that was calculated before the recovery in the stockmarket. Many are now finanancially better off again.

The reason firms are spending time contracting people back in isnt because it was wrong in the past but because Labour have reduced the rebates that get paid out every year making it harder for investment returns to equal the benefits. That said around 1 in 5 people are still better off contracting out if they fit the profile. Others may also prefer to contract out as they dont trust the Govt to pay the Serps/S2P or they want access to a lump sum benefit or take benefits early (which you cant do with contracted in benefits).

The FSA (the current regulator) believe that some have been incorrectly contracted out but these people can be indentified and it is expected that the FSA will instruct the companies involved to review these cases. An annuouncement on that is due next year.

Dont waste your money on this Spanish based firm and their dodgy tactics.

FloAnna

I work for an Life and Pensions company and we arent allowed to give people advise but everything i know and we all talk about we know that anyone 50 or below should opt back in to S2P.

FloAnna

I've just read some of the comments from EdInvertor and i think that the advise he is giving u bout this not being bad advise is rubbish,, i think if u do not know who yr pension company is then u have been miss informed and should complain.. its a joke really and to have been told to opt out at yr age is a dissgrace...!!!!!!!!