A scam is brewing in pension opt-out schemes |
|
|
Published
:
Tue, 23 Aug 2005 16:05
|
LONDON: Britain's Financial Services Authority, the city watchdog, has revealed that millions of people who have opted out of the second state pension scheme (S2P) had each lost at least 4,000 pounds from their pension pots. The authority warned financial companies that there could be investigation into the debacle.
The authority came out with research indicating that those who opted out of the S2P and the earlier State Earnings Related Pension Scheme (SERPS) and took a personal pension would have on an average lost 4,000 pounds. The country's largest insurance company, Norwich Union, had already initiated steps to automatically contract some 40,000 people back into S2P unless they specify not to. The company has been persuading people to come back into the S2P fold.
The Authority's research, conducted by Oxford Actuaries & Consultants, found that the worst affected would be older people and they would lose at least four pounds a week from their pension. Estimates show that some three million people had opted out of the scheme.
The watchdog said it is investigating into the manner in which the "opt-outs" were sold and there could be charges of mis-selling against financial companies, which it is likely to investigate. The amount of money lost would depend on the time when people had opted out and for how long, and their age and the charges imposed by the personal pension schemes in which they invested.
The Authority's predecessor, the Securities and Investments Board, had in 1996, found that people will be better off if they had opted out.
S2P is an additional state pension earned through paying national insurance contributions. The opt-out provision came into being in 1978 as a measure to reduce the burden on the taxpayer in funding the SERPS. While opt-out benefits were improved in 1986, these were again cut for most people in 1997 and again in 2002. People who exercised the option were also affected by the vagaries of the stock market, especially the crash in the early part of 2000.
The Authority told people that the study is not a guidance for their decision on pension. They should rather review their situation on an annual basis.
Last week, consumer services organisation Which? had alleged that 4.5 million people who left S2P were likely to be worse off than if they had remained with the state. It told the government to issue an immediate advice to personal pension holders to determine whether they should switch back to the state scheme.
|
|
|
|
|
|
Print this Story
