Industry comments are mixed regarding a possible investigation by the FSA over mis-selling claims on contracting-in and out of the state second pension, previously known as Serps.
The City watchdog’s intention follows a report on the cost saving ability for having stayed contracted into the State Second Pensions scheme, as apposed to those finding themselves with £4 per week less by contracting out at various times since 1998.
John Ellis, public affairs director at the Personal Finance Society says “any widespread mis-selling claims will be misplaced”.
He says while the FSA says it will look into the matter of contracting out further, any investigation will need to balance up each and every case individually.
Andy Agar, head of retirement product development at Legal & General , says the FSAs research appears to be balanced, but adds any analysis ought to be when assessing the pros and cons of contracting-in or out.
He points out contracting-in is also an investment vehicle like any other and therefore has no guarantees, adding: “We tell that to our customers time after time and tell them to review their situation after every year.”
That said, Agar also cautions any reports and comments made on the S2P should be based on the current level of contracting-out payments, including the research put out by Consumer Association Which?, as he believes payments will reduce in the future.
“To make conclusions can be quite dangerous, as there are a number of issues to consider when contracting-in or out,” says Agar.
He also questions whether the commission earned regarding advice on contracting-out rebates would actually prove a large enough sum of remuneration to entice advisers risking the effort in comparison to premium upfront commission business.
Rachel Vahey, manager of pensions development at Scottish Equitable , also points out the balanced view, taken by the FSA, should consider the wider factors affecting the personal circumstances of consumers when making a decision about contracting-out. This includes an ability to take part of the contracted-out pension as cash (post-April 2006) and the different death benefits on offer from a rebate-only personal pension.
Vahey says: “It is obvious from this that the FSA do not believe that this is a clear cut case, and that the issues go much further than the headline findings.”
Alasdair Buchanan, group head of communications at Scottish Life, says contracting-out is a yearly option and government has changed the rebates available for contracting-out on several occasions, which throws up further concern IFAs may be held accountable for advice not given, namely to contract back in to the state scheme.
“After the last change in rebates was announced, ABI member companies wrote to all contracted-out policyholders explaining what was happening and recommending that policyholders discuss their personal circumstances with their adviser.” Norwich Union questions the timing of the FSA report given the already skeptical viewpoint afforded the industry over mis-selling.
The life insurer suggests the FSA should focus on the now and not dwell on the past, but going forward should instead focus on helping both consumer and adviser.
Norwich Union says it will again send out letters to 40,000 clients this week, who do not have financial advisers, informing them they will automatically be contracted back into the S2P, unless they are specifically told otherwise.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Gareth Vorster on 020 7968 4554 or email [email protected].IFAonline
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