Money
Pensions
Payments capped on top-up pensions
Workers who have opted out of the Government's top-up pension scheme will receive less money in years to come with news that the Chancellor is to cap future payments, writes Holly Thomas
Millions were advised to opt out of the State Second Pension (S2P), which is paid on top of the basic pension to those who have made enough National Insurance (NI) contributions.
In the Eighties it was thought the NI rebates received would provide a better retirement income being invested in the personal pension, compared with any return opting into the state scheme would offer.
Eight million people are thought to be opted out. Middle England will be worst hit by the plans for capped rebates - which have been branded an extra stealth tax - according to reports.
The Liberal Democrats said that a 60-year old male on £35,000 would lose out on £2,000 in retirement savings by the time he reaches 65.
Rebates are paid into an Appropriate Personal Pension (APP) run by insurance companies.
Those most likely to have been mis-sold an APP are people who were above the recommended opting-out age - 40 for women and 45 for men.
Experts say if you opted out of the S2P above these ages, it is unlikely that your rebate will grow enough in time for retirement to replace any benefits you might have had if you remained opted in.
Consumer group Which? estimated that poor advice may have left savers worse off by £780 million.
But the Financial Services Authority (FSA) recently cut short its investigation into whether people were wrongly advised to opt out.
It admitted about 120,000 people with APPs might be worse off in retirement, but claimed its two-year probe had "found no evidence of widespread mis-selling".
Since 2005, Which? has been asking the FSA to make pension providers supply annual statements comparing the value of their clients' contracted-out pensions with the value of the state pension given up.
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.
They should compare the projected income from their contracted out personal pension with the amount they would have received from the state.
Consumers can complain individually to pension providers if they believe they received poor advice.
* Holly Thomas is an award-winning financial journalist and Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
A checklist from the FSA can help you decide if you were wrongly advised at www.moneymadeclear.fsa.gov.uk
