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MM leader: Pension reforms show IFAs were right to be wary of Govt

Individuals with decent work histories who have remained contracted-in to the state second pension are among those who may well feel aggrieved by last week’s Government reforms.

Those persuaded to contract back in, or who were automatically contracted back in by their provider following guidance from the regulator, are likely to be particularly annoyed.

Although last week’s state pension reforms should be broadly welcomed, they prove that the instinct of many advisers to keep client money as far away from Government control as possible was the correct one.

Dealing with contracting out was always going to be the messiest part of the Government’s reforms. People who have contracted out, either through public or private sector DB or DC schemes, will be able to keep the sums they have accrued through the NI rebate, which could equate to tens of thousands of pounds. From 2017, they will also be able to build up annual state contributions up to the new flat-rate limit of £144. In contrast, those who have stayed contracted in will have their future state benefits capped at the £144 level although they can keep benefits already accrued over this level.

Pension experts calculate the decision to contract back in may have cost savers £20bn in the context of last week’s reforms as many of the 2.5 million direct customers contracted out at the time the FSA raised its concerns were subsequently contracted back in by their provider.

The FSA began to take a close look at advice around contracting out in 2005 due to misselling concerns identified by the regulator and Which?.

In 2007, the FSA said it did not believe widespread misselling took place but suggested 120,000 people were at risk of having been missold through being contracted out between 1988 and 1997, with the FOS receiving over 700 complaints. Most were above the “pivotal age”, usually 40-45, considered to be the level at which people should be contracted in. Many will have now retired or are close to retirement, mitigating the effect of the reforms.

However, millions of others will have lost out through the pressure applied on insurers from the regulator to contract back in.

Regulators may say they cannot second-guess Government policy. But clients who remained contracted out based on the advice of their IFA, and despite the prevailing regulatory winds, look set to reap the rewards.


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There are 7 comments at the moment, we would love to hear your opinion too.


    Any money that you can have and control yourself will ALWAYS be better. Like the proverb – a bird in the hand…

    My view was that there probably wouldn’t be a state pension when I came to retire so anything I could salvage now would be good.

  2. Presumably, blessed with the divine gift of hindsight as our Regulators always are, the Regulators would support a claim against themselves for mis-selling (by “applying pressure on the Insurers to contract back in” – to the detriment [as we now know] to “millions of others”?)

    If an IFA persuading Clients to contract out (which could well have been to their benefit) is mis-selling, even more so should the sin of mis-selling apply to the FSA persuading people to contract back in (which could well have been to their detriment).

    Why do the words “Sauce”, “Goose” and “Gander” come to mind, I wonder….?!

  3. Alistair Paterson 24th January 2013 at 10:41 am

    And already we have the FSA weasels weaselling their way out of culpability with their “advisers should constantly monitor the suitability of their advice” comment.

    This isn’t the first time regulatory and Government pressure has prompted advisers to take wrong decisions. Remember personal pensions and opting out of FS schemes back in the 80’s? Happily I didn’t bite then and I didn’t bite now. But it would be lovely if I saw the FSA pay compensation from the directors salaries (not from my pocket) just once before I die.

    Never, ever trust any government with any of your money. They will always shaft you. That is what we have learned again.

  4. I was automatically contracted back in at age 50 by my provider. I will now contact my tame (well they seem to phone me up daily) ambulance chaser to see if I can get compensation for my losses. How could SW do this to me? Under what authority did they act? Why did they not have my best interests at heart? Why did they not want my money?
    Ahhhh regulators are at blame here no doubt.

  5. Trust the Government? Trust ANY Government?
    Why just restrict this to pensions? Anywhere you care to look the venal miscreants in Westminster have habitually screwed us (just name your own topics) – and ensured that their own snouts were firmly embedded in the honey pot.
    That’s why tax avoidance (as distinct from evasion) should be praised instead of condemned.

  6. Regulators may say they cannot second-guess Government policy
    Yet they use present day rules when judging things done in the past-expecting us to second guess them.
    As for Which? Anyone got any info on their advice to contract back in?
    They are already trying to weasel their way out of any liability.

  7. The FSA began to take a close look at advice around contracting out in 2005 due to misselling concerns identified by the regulator and Which?.

    Once again the fingers of Which? are involved in the mis-selling of a mis-selling scandal!

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