UK- The UK government faces another setback to its pensions policy after the National Association of Pension Funds warned that people under the age of 50 should opt back into the state pension system. Speaking at the opening session of the NAPF conference in Edinburgh, chairman Peter Thompsom said: “there is a case for people at younger ages to think about whether they should be contracting back in.”
The move comes a day after it emerged that four of the UK’s largest insurers Legal & General, Standard Life, Prudential and Equitable Life had written to thousands of customers in their fifties and sixties who opted out of serps suggesting they return to the second state pension.
At issue is the level of rebates paid to those who contract out of the state second pension to make their own private provision. Actuaries estimate that, with increased longevity and poor returns from the stock market, the rebates are insufficient to match the retirement income from the state equivalent.
Mr Thompson conceded that the rebates for staying out and establishing private pensions are generous but no longer high enough. He added that insurance companies are anxious of being accused of mis-selling if the contracted out pensions fail to match the forgone state pension.
The NAPF’s stance will be a further blow to the government who has announced it wants to increase the proportion of retirement income supplied by the private sector from 40% to 60%. People opting back in is likely to have the opposite effect particularly if William M Mercer’s estimate that there may be three million fewer opting out in the next five years is correct.
Pensions secretary Alistair Darling told a government select committee that pensions strategy remains unchanged and that the latest advice from the NAPF and insurance companies was driven by poor stock market performance.