S2P (what was SERPS) - Contracting out

[CliveV]

The FSA has just issued an excellent leaflet on this:-

http://www.fsa.gov.uk/consumer/pdfs/contracting_out.pdf
The rules and consequently the calculations on whether you should be contracted out have changed - everyone should review what they are doing.

Failure to do so could mean that you have less income in Retirement - therefore less for caravanning!

(OK - tenuous link! - but I suggest that a head in the sand attitude on this is REALLY not a good idea)

 

[RogerL]

Don't Financial Advisers, independent and tied, routinely update their clients when contract in/out optimisation changes? They used to!

 

[CliveV]

Well we certainly do! - but if you contracted out 20 years ago??? Do you really want to rely on that firm or individual contacting you?

Sorry Roger - it just does not happen in general - you need to take a bit of responsibility yourself - not rely on anyone or any organisation to hold your hand forever. We have a list of such clients in our archive file and we send them a letter saying things have changed - please contact us. That is as much as we can do.

In any event, Tied Agents are only authorised to tell you about the plans they have in the companies "stable" that they are tied to.

They cannot advise you on whether you should contract in or out of the State Scheme.

Only an IFA can do that. Similarly if you want advice on your company pension scheme (assuming it is contracted out) a tied agent is not allowed to advise on this as the pension scheme is obviously not something the tied adviser is authorised to advise on.

It is worth noting that the "Tied Agent" is as it sounds - he/she is an agent of a provider.

Whereas the IFA is the agent of his/her client and works on her behalf to get the best deal under the "Best Advice" rules of the FSA. Because IFA's work for you, with your permission they can approach the Trustees of your company pension scheme and find out EXACTLY its strengths and weaknesses, if it is well run, or in deficit.

It is pretty well explained in the FSA leaflet

 

[RogerL]

CliveV - it does happen (or at least it used to).

During my working life I was regularly advised on opting in/out, based on age and then current projected return. I had lots of reservations about the quality of advice from Financial Advisers, but this wasn't one of them. Perhaps it's worse than I thought!

 

[Lol1]

Thanks for the info, Clive. It still seems like "Swings and roundabouts" to me. Nobody will stick their neck out and tell you which is the best course.

Wish I hadn't sold the crystal ball, now. Still, I didn't see that one coming either!

 

[CliveV]

The problem is that there are three variables to try to take into account.

1) How much you NIC you pay which is based upon how much you earn. The more you earn the bigger the rebate the more money in your "Pot" you could accrue. If you are a low earner, the Minimum Income Guarantee (MIG) means that you should probably not have a personal pension because all you will be doing is saving to substitute a MIG

 

[CliveV]

CliveV - it does happen (or at least it used to).

During my working life I was regularly advised on opting in/out, based on age and then current projected return. I had lots of reservations about the quality of advice from Financial Advisers, but this wasn't one of them. Perhaps it's worse than I thought!

In the past Roger your provider would write to you saying that you have reached a certain age and so you need to make a decison.

But they never advised you what to do. As this would have meant they took on responcibility for the advice.

The letters always stated something like "If you are uncertain - seek Independent Advice".

With the Government constantly moving the goal-posts on this most providers state openly that they are no longer willing even to say if you are reaching a "crunch point" or not.

On a personal note I would rather have my money in a bucket with my name on it for me to invest how I want - rather than trust the likes of politicians.

So far I have well and truly outperformed the State Schemes.

 

[CliveV]

This from one of the "Pinks"

83 per cent choose to remain contracted out of S2P, says L&G

James Salmon - 28-Nov-2006

Early responses to Legal & General's mailing to contracted out customers show that 83 per cent have chosen to remain contracted out of the State Second Pension.

Based on 3193 responses received as at 13 November, 2644 customers opted to stay contracted out.

The news comes as several firms such as Norwich Union continue their policy of mass contracting in customers that have failed to respond to correspondence presenting them with the options.

This move has been criticised by Legal & General pensions strategy director Adrian Boulding who says people contracted in without their knowledge may well have grounds for a misselling complaint if they lose out as a result.

But NU has defended its strategy, arguing it has done everything possible to make customers aware of the options.

Legal & General, meanwhile, is issuing the same message to customers for the 2006/2007 tax year is the same as last year.

If customers wish to maximise the pension they can expect to receive at State Pension Age it says they are more likely to achieve this by contracting back into the State Second Pension.

But remaining contracted out gives customers more flexibility as a personal pension gives them the option to take benefits, including tax free cash, prior to State Pension Age.

Boulding says:

"While it is still early days, on the basis that those who reply quickly usually have the strongest views, the results vindicate our stance on the importance of giving customers a choice regarding their contracting out decision."

Boulding adds: "We have placed a great deal of emphasis on communication with this year's mailing to customers which, as well as a personal letter, has included a full Question and Answer leaflet and a link to a podcast (www.legalandgeneral.com/podcast) to help pension customers make their contracting out decision for the 2006/2007 tax year."