View more on these topics

ABI calls for big rebate increase

The contracting-out rebate should be substantially increased and the state second pension should become a flat-rate system if contracting out is to be a success, says the Association of British Insurers.

It says the Government Actuary’s Department will soon review rebate levels and believes a big increase is required to restore its original position and role. The paper comes after research from the FSA and Which? pointing out the losses suffered by investors through contracting out. Which? claims that the average contracted-out person will be 800 a year worse off than if they had stayed contracted in while the FSA says the average pension loss is 4 a week.

Which? has called on the Government to take action on contracting out as a result of both pieces of research. The FSA says because of the large number of consumers who have lost out, it will be investigating whether there has been any misselling.

But the regulator is stressing that underperformance does not equate to missell- ing and says there will not be any retrospective action against advisers.

In the longer term, the ABI says a radical change to S2P is needed, with it becoming a flat-rate system with entitlements calculated as if everyone were earning 15,000 year.

It says contracting out should then be abolished for anyone earning less than 15,000 because they would be bet- ter off staying in S2P while an incentive to contract out should be given for people earning more than 15,000.

The ABI considers these proposals would provide a dec- ent income in retirement for everyone and reduce the need for means’ testing.

Director of life and pensions Chris Kenny says: “The present situation has come about because the Government reduced the level of contracting-out rebate that is paid into private pension schemes.”

A statement from the FSA says: “Performance risk is an inherent risk of personal pensions but remaining in S2P is also subject to potential uncertainty about future Government policy.”

Recommended

Segments squeezed dry

Anumber of providers have launched segmented section 32 contracts. Under the post-A-Day rules, each segment becomes a separate pension scheme.

Cover from terrorists

I am writing to clarify Bupa’s policy relating to the recent terrorist incidents for both Jim Gillespie of Independent Financial Services (August 11) and your readers. Bupa will do all it can to help customers affected by recent terrorist incidents in London and Egypt. In the UK, the best place for people injured in terrorist […]

Tax allowances and exemptions

Helen O’Hagan, Technical Manager at Prudential, looks into the planning strategies that can deliver considerable tax savings for your clients. Inheritance tax (IHT) Consider Margaret, featured on our Planning Matters family hub, who is a sprightly eighty year old with four children and several grandchildren. She’s recently been widowed and IHT planning is high on […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment