Scottish Equitable is predicting few people will choose to contract-out of SERPS and S2P under ex...
Scottish Equitable is predicting few people will choose to contract-out of SERPS and S2P under existing Inland Revenue guidelines, as the new rebates do not provide a clear financial incentive to do so.
In his latest Ritchie Paper, Stewart Ritchie, Pensions Development Director at Scottish Equitable, believes that this lack of clear financial incentive is likely to complicate the contracting out decision, and deter many people from making the commitment.
Ritchie says the decision has changed from a primarily financial one to a philosophical one of whether it is better to take the rebate currently on offer and invest it privately, or whether to trust the government and hope the State will honour its promises at a future date.
Ritchie says as a consequence of individuals' uncertainty, pension providers will find it increasingly difficult to give clear guidance, and facilities such as the tables of pivotal ages will be difficult to understand.
As a result, the need professional financial advice is even greater, says Ritchie.
"The contracting-out arguments are extremely complex, and the new rebate levels have made the position worse, not better.
"With no clear financial advantage to support contracting out, individuals, employers and trustees will be turning to IFAs to help them make informed decisions on whether or not to contract out," says Ritchie.
"The FSA also needs to consider how the contracting-out issue will be dealt
with in future through decision trees. As things currently stand, individuals
working through a decision tree have no possibility of making an informed
decision whether or not to contract out."
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