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‘Mass move into S2P is Russian roulette’

Providers recommending mass contracting back into S2P are playing Russian roulette with people’s retirement incomes, says Informed Choice managing director Nick Bamford.

His attack comes as the industry desperately tries to fend off an FSA review of contracting out, which sources say could cost the industry over 3bn in compensation.

Many insurers have again been writing to customers presenting the pros and cons of rejoining S2P but some firms, including Norwich Union and HSBC, have automatically contracted direct consumers back in. NU is reviewing this policy but of the 40,000 consumers it wrote to offering the choice, only 6,800 chose to remain contracted out and 37,200 were automatically contracted back in.

Bamford says: “Recommending mass contracting out is like playing Russian roulette with people’s retirement incomes. It is an individual case by case decision and I hope any individual who goes back in and ultimately finds themself worse off is compensated by product providers that cajole them to do this.”

He says a key risk of contracting out is that the Government will reduce the value of Serps. He says its proposal to abolish contracting out also creates an opportunity for some to exploit the National Insurance rebates for as long as they can.

Scottish Widows, which only automatically contracts back in people over 50 and has automatically contracted in 2,414 people so far, says it is “entirely comfortable” with its policy.

Head of pensions market development Ian Naismith says: “These people will not be affected by the increase in state retirement age and would almost certainly lose out by not contracting back in. They have not responded to previous letters about contracting out.”

An FSA spokesman says: “There are no specific rules on this area. Firms have to make their judgement based on the circumstances.”

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