SIB seeks help on opt-out pensions
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Your support makes all the difference.The Securities and Investments Board yesterday asked the insurance industry to give voluntary help to up to150,000 people who have been hit financially after contracting out of the State Earnings Related Pension Scheme.
Their total losses may be up to pounds 38m, but this compares with gains of as much as pounds 10bn for the rest of the 5.5 million people who opted out of Serps and invested the generous government rebates in personal pensions.
The decision to go for voluntary help is a sharp contrast with SIB's approach to the wider personal pensions crisis over mis-selling, where firms have been ordered to make payments to compensate victims who had been wrongly transferred into private pensions.
Six banks that sell pensions as well as a number of large insurance companies such as the Prudential gave firm backing to the proposal by Sir Andrew Large, chairman of SIB.
The British Bankers' Association Bancassurance Group, representing Abbey National, Barclays, Lloyds TSB, Midland, NatWest and Royal Bank of Scotland, said members would waive future flat-rate charges for the problem pensions identified by SIB.
Sir Andrew made clear that if there were any recalcitrants in the insurance industry who refused to help he would publish their names.
He added that his voluntary plan did not close off customers' option of complaining formally to SIB if they got no satisfaction. But he expected most companies to comply.
SIB said research by actuaries had shown the Serps problem to be surprisingly limited in scope compared with mis-selling of personal pensions.
The main reason is the generosity of the Government's rebate for opting out, which is worth an average pounds 1,000 each for those who have not opted back in, and probably pounds 10bn in total to nearly 5.5 million people.
This is the additional value of their pensions created by investing the rebate, compared to the value of staying in Serps.
The Government's 6 per cent rebate for opting out was topped up with an additional 2 per cent and this package acted as a financial cushion against the high fees charged by some insurance companies. These fees ate into the capital value of those personal pensions which were funded mostly or entirely by the rebate.
The generosity of the rebate limited the number who lost money by contracting out to between 43,000 and 238,000 people, according to research for SIB by the actuaries Alexander Clay & Partners. Their losses were between pounds 10m and pounds 38m.
SIB's best estimate is that the number of people who lost money is unlikely to be above 150,000 of the 5.5 million who contracted out.
The losses were mainly incurred by younger people on low incomes or who became unemployed, and whose private pensions were mainly or wholly made up from the Serps rebates.
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