City watchdog criticised over Serps probeIt misses 'golden opportunity' to help consumers

09 May 2007

Which? has slammed the City regulator for ‘missing a golden opportunity’ to help thousands of people who lost money by opting out of Serps and the Second State Pension (S2P).

Following an investigation, the Financial Services Authority (FSA) says the vast majority of people who contracted out of the two state-run schemes were not mis-sold policies.

It said it found ‘no evidence’ of widespread mis-selling in relation to advice given to people wanting to opt out of the schemes.

But it did identify around 120,000 people who could have been wrongly advised and may be missing out on crucial retirement money as a result.

Around eight million policies were sold to consumers who hoped that by moving from the State Earnings Related Pension Scheme (Serps) and its replacement the State Second Pension (S2P) to the private sector they would be able to boost savings.

Second state pension

But the FSA said today that around 1.5 per cent of the people who moved out of their Serps or S2P were likely to be worse off.

Which? principal researcher Teresa Fritz said: ‘The FSA has missed a golden opportunity here to help consumers.

‘The 120,000 people identified by the FSA, who may have been wrongly advised to contract out of the second state pension, could end up incurring a combined lifetime loss of £780 million.

‘But this is just the tip of the iceberg, as we have calculated that the total number of people affected could be up to 4.5 million. Pensions could be seriously under funded without people even realising it.   

‘Since 2005, Which? has been asking the FSA to make pension providers supply annual statements comparing the value of their clients' contracted-out pensions to the value of the state pension given up.

‘This is the least the industry can do given the millions it has earned in commission from contracting out. We will be requesting an urgent meeting with the FSA and the Department for Work and Pensions to discuss how to help consumers understand if they have suffered a loss.’

Personalised statement

People who have been advised in the past to contract out of the state second pension should contact their pension provider and ask for a personalised statement.

This should compare the projected income from their contracted-out personal pension with the amount they would have received from the State.