Contracting out of the additional state pension – higher risk consumers need to know their potential loss

9 May

The Consumer Panel is disappointed that the FSA is not going to insist on individual illustrations of potential loss being sent to those people who are most likely to have been missold in contracting out of the State Second Pension (SERPS/S2P).

The FSA's analysis of contracting out of SERPS, published today, showed no widespread mis-selling but did identify a small group of consumers who may be at a higher risk of having been mis-sold. These are people who were advised to contract out between 1988 and 1997 when they were over the pension provider's 'pivotal age' – the age above which it was no longer generally deemed financially advantageous to contract out.

Although it is a small proportion of people potentially involved – 2%, representing around 120,000 people – for those people, the average possible loss of £7 per week in retirement could be quite significant. Indeed, as it is a relatively small number of people in a complex situation, the Consumer Panel advised the FSA that they should insist on firms writing to these people with a personalised illustration of how it has affected their pension.

John Howard, Chairman of the Financial Services Consumer Panel said:

"It may be only a small proportion, but those people need to understand that they may have been missold, and see how it has affected their own pension, so they can decide whether to take action. The FSA's plan to provide information on its website leaves it to consumers to take the initiative to work out if they should look for the information, rather than showing them the potential loss to stimulate action."

Notes to editors

1. The outcome of FSA thematic work on past advice on contracting out of the state pension, is published on the FSA' s website today.
   

2. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status.
   

3. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit. More information about the Panel's work is available on this website.
   

4. The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.
   

5. There are currently twelve members of the Panel as listed below.

   John Howard (Chairman)
   Adam Phillips (Vice Chairman)
   Kay Blair
   Michael Chapman
   Stephen Crampton
   Caroline Gardner

   Jenny Hamilton
   Tony Hetherington
   Nick Lord
   David Metz
   Lindsey Rogerson
   Carol Stewart