Which? has written to Financial Services Authority (FSA) demanding an investigation into the latest pension scandal.
We’ve found an estimated 4.5 million people who contracted out of the state second pension (formerly Serps) into a personal pension look likely to get less than they would have received had they stayed in the scheme.
Which?’s Emma Bandey said : ‘Which? believes that contracting out may be a mis-selling scandal that’s gone unnoticed and it is imperative that the FSA does something about the situation soon.
‘Consumers have to make a decision about their contracted out status quickly because our research shows that millions of consumers’ core retirement income is reducing each year they remain contracted out. We believe that most consumers are completely unaware of this loss.’
Since 1988, the government has handed over GBP 35 billion of taxpayers’ money to the pensions industry to invest on behalf of those people who were advised to opt into a personal pension.
Of that GBP 35 billion, around GBP 3 billion has been paid to pension providers and financial advisers in charges. But a combination of high charges, poor investment performance and a huge abdication of responsibility from the government and the pensions industry has produced yet another pensions scandal.
In 2005 Which? contacted 107 people who were contracted out of the state pension. The majority were worse off.
Follow-up research with 55 people revealed 32 people did not feel they had been made aware the value of their contracted out pension could be lower than the pension they would receive from the state. Only six agreed they had been made aware.
Eighteen people disagreed that it had been properly explained to them what they received from their contracted out pension would be dependent on investment growth. Seventeen people did not understand that by contracting out they were giving up their entitlement to the second part of the state pension.
Emma Bandey said: ‘Which? believes that the potential for contracted-out personal and stakeholder pension mis-selling claims could be huge.
‘What’s more, it proves once again that the insurance industry cannot be relied upon to run a pension scheme without putting fees and charges above the interests of the consumer.
‘The industry is now pushing for a future model of pension provision that will still not put the consumer at its heart. The failure of contracted out personal pensions should provide a lesson for the government. It needs to take the opportunity to build trust and confidence with consumers by implementing a national pension savings scheme (NPSS) and making sure that mis-selling is not an issue for future generations.’