The consumer watchdog, Which?, has warned of a billion pound pension scandal over contracting out. A report published recently by the Consumer's Association estimated that 4.5 million people who contracted out of the State Second Pension into a private scheme would receive a lower income than if they had stayed in the S2P.
They believe that around £3 billion of the £35 billion of tax payers money handed over by the government to the pensions industry, has been paid to pensions providers and financial advisers in charges. According to Which?, those set to lose the most, are those who contracted out after 1997, the year when National Insurance rebates became age-related. Only one person out of every 22 who contracted out, is likely to receive an improved pension.
Our view
If markets had continued to perfrom well then you would not be hearing a whisper from Which? or anybody else. The Government still continue to encourage contracting out by issuing age related higher incentives and with effect next April they will even allow you to withdraw tax free cash!
Retrospective pundits are always brilliant at it! It is accepted that some will be better off and others will not be. Has Which? answered the question - "What if nobody had contracted out?" Would we still have the state pension that we have today? Would the Government have crucified even further to State Second Pension?
Learn about contracting out. Search the news archive for more on pensions.