UK- The UK government’s pension strategy suffered a blow today when it emerged that four of the country’s largest insurance companies have written to thousands of customers who opted out of Serps suggesting they return to the second state pension.
Legal & General, Standard Life, Prudential and Equitable Life are urging people in their fifties and sixties to return to the top up pension scheme that is replacing Serps from next month.
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.
The setback for the government comes after the consultant William M Mercer announced in January that the increase in rebates, which are being introduced next month, are still inadequate to cover the cost of replacing the forgone state pension.
A shift back into the second state scheme will threaten the government’s plan of shifting the burden of pension provision from state to private sector. It wants to increase to proportion of retirement income provided by the private sector from the present 40% to 60%.
Dick Strattan, worldwide partner at Mercers, says the new rebates are almost certain to produce the opposite effect and he estimates that in the next five years there may be a reduction of as many as three million in the number of contracted-out individuals.
The setback also coincides with a recent spate of companies closing their final salary or defined benefit schemes. The low rebates have in addition contributed to the low subscription rate to the government’s stakeholder pensions launched last year.
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