Pensions system

Joanne Segars, head of pensions and savings at the ABI, said:"Contracting out is a complex issue and we felt it was very important to provide factual industry wide information to customers. 

"The fact sheet explains how contracting out of the second state pension works and the pros and cons involved in both contracting out and contracting back in.  It will enable customers to make up their own minds about contracting out."

Stakeholder Response: Which?

Tereza Fritz, Which? principal researcher, said: "Contracting out of the state second pension is a terribly complex subject and we are shocked that the industry, after collecting commissions for years, has produced a fact sheet so lacking in any real guidance that it leaves people completely in the dark about what to do next to secure their pension. This is yet another example of this industry abdicating responsibility to its customers.

"The reasons behind the launch of this fact sheet today are suspect. That these fact sheets are to be distributed via insurance companies and independent financial advisers to 'inform' customers who have been sold pension contracting-out products in the past can only imply that the ABI has serious concerns about those people who are contracted out.  We have concerns that this could indicate huge scale mis-selling.

"Which? has informed the industry that any companies or advisers which have previously advised a customer to contract out should offer free advice on what to do next. If personal financial advice could be given in the past in order to make a sale, it must be possible to give advice now. 

"Which? recommends customers go back to the original firm or financial adviser and demand help in making the right decision on this hugely complex issue. The wrong decision means some people may be heading for a pension worth 60 percent less than they would have received if they hadn't opted out of the state scheme.

"Which? believes the situation is so serious that we are calling upon the FSA to conduct a full market analysis to determine if there has been significant market failure in this area."