State second pensions (S2P) are on course to replace Serps as of 6 April 2002, but product providers...
State second pensions (S2P) are on course to replace Serps as of 6 April 2002, but product providers believe there will be no more incentive for people to contract out than there is under Serps, writes Kira Nickerson.
In the DSS's regulations on the rebates for S2P, the Government did not heed the bulk of responses from its consultation process, according to Stewart Ritchie, pensions director at Scottish Equitable.
He said: "The bulk of replies the Government received to the consultation, which started in September last year, was that it was not building in sufficient inducement for people to contract out. They have included higher rebates but not as many as people thought."
S2P is expected to be of good benefit to lower earnings, Ritchie said, with benefits and rebates doubling for those who earn in the £10,000 bracket. Overall, though, the rebates offer little financial incentive for people to opt out of S2P's, he said.
"There is no bribe element," Ritchie said. "You either trust the State to take care of your pension or handle it privately, but it is less of financial question and more of a philosophical one."
The regulations laid last week will lead to an increase in the cut off level for rebates. In the Government's first proposals, rebates would be cut off at 9% of the middle earnings band and this has now been raised to 10.5%, Ritchie said. At 9%, there would be a certain age in which it would become natural for people to stop contracting out because the advantages would be less once they surpassed that 9% level.
If the decision to opt out comes down to performance then IFAs may have to wait until actuaries have the opportunity to calculate a level of return that investors would need to achieve in order to make contracting out worthwhile.
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