Scottish Widows wrote to around 7,500 direct customers in December and January, telling them that they will contract them back into the second state pension by the end of January, unless they object. This has now started. The customers are all over 50, and are expected, by Scottish Widows, to lose out financially if they remain contracted out. No customer with an independent financial adviser will be contracted back in without an instruction to do so. The provider believes that they have decided to contract some of their customers back into the second state pension without an explicit instruction because the risk of financial loss is becoming higher.
Our view:
Given the current incentives, or lack of, offered by the Department for Work and Pensions to contract out, the comparisons v the money going into your own private scheme are very close - hence most advisers and insurers suggesting contracting back in. We predict the State will react in a few years - will the launch of a new National Pension Scheme - and your National Insurance, that currently would have been contracted out to your own private pension, will form the backbone of this - we will have forced contracting out. Learn more about contracting out in our State Pensions Centre.