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Serps and drawdown the next scandals?

Contracting out of Serps and the state second pension and income drawdown are the most likely candidates for the next misselling scandals, warns consultant PricewaterhouseCoopers.

The consultant says some of the five million people who contracted out of Serps might have been better off if they had stayed in, particularly among the lower-paid.

It argues that someone approaching 65 this year who contracted out for five years in the late 1980s and early 1990s would have a pension around 40 per cent less than if they had stuck with Serps.

But it says that any misselling claimant would still have to prove negligence by the adviser.

The consultancy says people who have lost out under their income-drawdown investment as a result of poor equity returns and annuity rates could have lost far more money but have less chance of claiming that they had been a victim of misselling because they received full warnings at the time.

PricewaterhouseCoopers partner John Shuttleworth says: “Someone reaching 65 this year who contracted out in the late 1980s for five years has lost out.

“Having followed the stockmarket up to the top of the hill and back down again, their pension is about £420 a year. But the dull and boring Serps pension that they voluntarily forfeited would have been £720 a year. So people have suffered losses but can they make a case for negligence?

“Drawdown was advertised to allow people to stay in equities, because equities go ever upwards, and to defer the purchase of the annuity, because interest rates also go upward.

“Neither has happened and so the losses being nursed are big ones. Yet the prospect of proving negligence is less clear-cut as most investors were rich and had their rights read to them at the point of sale.”

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