People who contracted-out of Serps in the 80s and 90s could be as much as 40% worse off than anyone ...
People who contracted-out of Serps in the 80s and 90s could be as much as 40% worse off than anyone who decided to remain within the State pension scheme, says a Which? Report being published today by the Consumers' Association.
An in-depth look at contracting-in and out of the State Earnings Related Pension Scheme (Serps) is being presented over two editions of the Which? Report to try and highlight just how difficult it is to know whether consumers should be 'in' or 'out' of the system.
Among the data presented, the CA says over five million people had contracted-out by 1992, yet data on different types of personal pensions and companies indicates that "many people are set to lose out".
Three example cases are highlighted to show the effect Serps has had on a 25-year married couple looking to retire in 2029, a single man aged 35 who is due to retire in 2019 and a single woman also aged 35 who is due to retire in 2019.
Which? Suggests in its three-page review that a 25-year old in 1989 would have been substantially worse off than their counterparts still in the State system if they leave Serps, but the situation would be much worse for a 35-year old.
While Which? editor Helen Parkes places some of the emphasis on the advice given by financial advisers at the time, she also points out that that it is down to the individual because it depends on their age when they contract out, their sex, as well as past and future investment growth.
"Fifteen years ago there was a huge amount of hype about contracting out of Serps. Unfortunately, the future for those who opted out may not be as rosy as was predicted at the time. While we're not saying opting out was a mistake for everyone, our analysis shows that million of people may well have been better off staying in the government system," says Parker.
This month's edition of Which? focuses on the issue of contracting in and out, next month's edition will help consumers to work out whether or not they should contracted into Serps now or in the future.
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