Recent reports saying that workers should remain in the State Second Pension (S2P) could cause contracted-out clients who made their decision ten or more years ago, to seek new advice.
In the past, company and private pension scheme members were encouraged to contract out of the state earnings related pension scheme (Serps)- which was replaced by the S2P in 2002. It was assumed then, that because contracting out allowed for alternative investment, individuals would achieve far better pension performance than if they were still contracted in.
Statistics from the Department for Work and Pensions show that around 12 million people are currently contracted out of the S2P, and that 3 million could choose to opt back in. Figures from the Government suggest that investment performance for people over 55 must improve in order to level with the S2P benefits, so it may be beneficial for these members to opt back in.
Our view
Contracting out is a close decision and in many cases people may be better off being contracted in rather than out.
Learn more about contracting out in our State Pensions Centre.