New advice on pension opt-outs

A new pamphlet from the FSA gives advice on opt outs

The Financial Services Authority (FSA) has published fresh advice to people who may have made a mistake by opting out of the state second pension (S2P).

It says people should complain if they think they were wrongly advised to opt out between 1988 and 1997,

Earlier this year the FSA said it had found no evidence of systematic mis-selling of the opt-out pensions.

But it concluded that 120,000 people might still have been the victims of poor advice to leave the S2P.

At the time, the S2P was known as the State Earnings Related Pension Scheme (Serps).

Low returns

It was the policy of the then Conservative government to encourage people to opt out of it, into an alternative personal pension, in order to give them greater choice and flexibility.

The lure for people to do this was a rebate on their national insurance contributions, which was then invested into their new personal pension policies.

Since then, the policy has become widely seen as a mistake, because of much lower-than-expected investment returns.

But of the eight million or so people who have opted out at some time in their lives, very few, just 120,000, were making a potentially bad decision which the FSA now thinks should have been spotted at the time.

The potential victims it is still worried about are those men who were over 45 at the time they contracted out, and those women who were over 40.

They should have been identified as being too old, even then, to benefit from any extra investment potential of the new policies.

However, the FSA says even they may, in some cases, have had valid reasons for still following the new policy.

Check the details

The FSA's pamphlet gives readers a guide on what they should do if they were above the relevant age limits, at any time between 1 July 1988 and 5 April 1997.

It asks if they were not only above those ages, but were also advised to contract out, and were, in addition, unaware of any special reason for doing so.

If they think they do fit these criteria, then they are advised to complain to the firm that gave them the advice and to ask for compensation.

"If you were above the pivotal age, advice to contract out was likely to be wrong, unless there was a particular reason that outweighed the likely disadvantage," says the FSA.

The average amount of pension that someone might have lost by opting out of the S2P is currently estimated at an average of £7 a week, though in reality some people may have lost nothing at all.

However, the FSA warns that people will have no grounds for complaint if they took their own decision, without advice, or if they went ahead despite being advised not to do so.