Scottish Widows didn't contract me out in 2005 - what does this mean?

happyshopper

I have a personal pension plan with Scottish Widows through a previous employer from April 2005 to when I left that employer in October 2011. I have not contributed to it since I left the employer.

Today I have received a letter from Scottish Widows which says

"IMPORTANT INFORMATION ABOUT YOUR PENSION PLAN - ACTION REQUIRED...According to our records, you intended to 'contract out' of the additional state pension scheme in April 2005 under your personal pension plan. Although we confirmed that we had done this, we did not pass your request on to HM Revenue & Customs and you appear to have remained 'contracted in' to the additional state pension scheme."

It then goes on to say that I can't contract out retrospectively so I will remain contracted in to the additional state pension scheme.
They have enclosed a questionnaire to enable them to do calculations and determine whether or not I am due a payment as a result of the error.

They are asking me to provide a lot of details e.g. evidence of my salary at the date I intended to contract out, and for all the tax years since then, evidence from other pension schemes (I have several from different employers), details of the date that I am intending to retire. I am not sure of all of the differences between contracting out and contracting in but it seems that I could have taken my pension from age 55 if contracted out, but not now that I am contracted in. I can't really remember making the choice between the two, but I assume that I was advised by the financial advisor at work who organised the pension at the time to contract out.

Can anybody advise me as to what this error means in practical terms? Will I have been disadvantaged by not being contracted out? What can/should I expect in terms of any compensation? Is there anything in addition to filling in their questionnaire that I should do?

Many thanks in advance,

happyshopper

dunstonh

I am not sure of all of the differences between contracting out and contracting in but it seems that I could have taken my pension from age 55 if contracted out, but not now that I am contracted in.

The is one of the benefits. The others are 25% tax free cash of the fund value. Better death benefits. The potential negatives are that it is subject to investment returns, annuity rates (if that option chosen) or your speed of drawdown.

Generally, in pure financial terms only on a like for like basis, it is generally regarded as cost neutral.

What can/should I expect in terms of any compensation?

Possibly nothing. Possibly a very small amount when they calculate the difference.

If you joined a final salary scheme after that point, that would take priority over the contracting out with SW. This is why they need to ask questions.

Is there anything in addition to filling in their questionnaire that I should do?

no

happyshopper

Just to update, I received a cheque for £660 in compensation. I have provided more details on somebody else's thread here:

http://forums.moneysavingexpert.com/showpost.php?p=65919743&postcount=15

HS

going_deep

Currently waiting for Scottish widows to get back to me. Happened to about 12 fellas at work. Most have received figures around £1400 mark.

jamesd

From the other thread "They decided that I would receive a higher amount of pension through having been contracted in to the additional state pension scheme, than if I had been contracted out of it as requested, so no compensation due for that."

Their claim is blatantly untrue unless you reach state pension age before or very soon after the flat rate state pension is introduced. Your actual loss is all of the money that you would have received in contracted out rebates plus investment growth until you choose to take benefits from that pot.

What they have done is treat it as a contract out or not decision and have provided compensation as if you had been wrongly advised to contract out based on the rules at the time.

Your much larger loss comes as a result of the flat rate state pension. Unlike the previous system it caps accrual of additional state pension as soon as your total state pension entitlement reaches the flat rate level. So a person who works enough to get more than that loses every penny of the money for any contracting out that they didn't do.

I suggest that you complain that they have not paid redress for your actual loss but have wrongly treated it as a contract in or out decision that was wrongly advised. It is likely that they are hoping that people will simply accept their basis of calculation rather than realising the effect of the flat rate system and how it greatly increases the losses.

If they do not agree I suggest that you take the matter to the FOS and ask the FOS to also refer the matter to the FCA so that it can provide guidance on the effect of the 100% loss for those who were not properly contracted out.

greggc

Has anyone got any further with this?

I am trying to complain based on the missing years rebates, but like others have received a small compensation for the impact of lost PCLS. I want to take benefits at 55 so not only am i going to miss out there but will also lose death benefits and only probably get single tier pension anyway. SW have really messed this up!!

jamesd

I've seen no feedback from those who have taken it further yet. Please do and let us know how it goes. The key fact is that you had decided to contract out, so it is not a case of contract out or not but of working out your actual loss having decided to contract out, which is probably all of the contracted out money you would have received.