Following AXA Sun Life's advice to policyholders that no one should be contracted out of the State Second Pension (formerly the State Earnings Related Pension Scheme), Standard Life hailed the move as a way of forcing the Government's hand in an attempt to change their current policies. By giving the advice to policyholders, the majority will get round to contracting back in and the Government will be landed with an added burden to provide earnings related pensions for these people, in addition to the basic State pension. HSBC took the initiative of writing to policyholders stating that they would be contracted back into the State Second Pension, unless they were told otherwise.
Our View
The whole reason for the Government introducing contracting out was so that people could take some of the burden for State pensions away from the State. For the first few years the Government even incentivised people to do so. However, with the introduction of the State Second Pension and falling investment returns, the question of whether or not to contract out is now so close. A movement in investment returns by even half a percent could swing the decision the other way.
HSBC's actions will probably see more policyholders contracted back in. This is because people do not see pensions as a priority and will get round to doing something eventually. By then they might have made themselves financially worse off in retirement.
HSBC will automatically return people to the State Second Pension unless you tell them not to. Have you had a letter?
In our view AXA wants the Government to increase the contracting out incentives. In simple terms, bring back the incentives.
Learn more about state second pensions and contracting out in the Pensions Adviser.com.