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Contracting-out choice shifts from pivotal age

Product providers are moving away from using pivotal ages for contracting-out decisions, believing all policyholders should review their position in light of the new second state pension and lower investment returns.

Axa says men aged 56 and women aged 49 should be contracted in but believes people should hold off from making a decision as the rebate levels may change under S2P.

Norwich Union says 54 and 48 are its pivotal ages for contracting in but it is writing to customers to explain S2P and the investment risks of staying contracted out.

AMP, going against the grain, believes that 54 is an attractive age for men to contract out of Serps.

NU is also issuing IFAs with a contracting-out guide, giving information on the investment returns needed to outperform the benefits of S2P.

Royal & Sun Alliance has written to all its customers, telling them to consider contracting back in to S2P. It says pivotal ages are no longer appropriate and everyone needs to review their contracting-out decision.

The Government set out its contracting out-rebate levels last year and they will take effect from April when S2P starts.

Axa senior technical manager Tony Tollerton says: “The big question is whether anyone should be contracted out, whatever their age. The decision is very difficult because it depends on future rates of investment. It may be best to wait – there is a good chance that the Government might reconsider.”

Norwich Union director of pensions development Jerry Barnfield says: “The new rebate levels mean the benefits of contracting-out are more marginal.

“It depends on whether people think their investment will outperform S2P. It is not as simple as saying there is a cut-off age as attitudes to risk run across all ages.”

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