David Prosser: No wonder pension savers feel so lost

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The Independent Online

How millions of desperate pension savers could do with such a leader. They're certainly not short of disasters - in the latest scandal, it turns out that up to eight million people who have used personal pensions to opt out of the second state pension and Serps since 1988 may have made a mistake, or been badly advised.

The Financial Services Authority, the chief City regulator, says that everyone who has contracted out of S2P is in danger of losing out, by an average of £4 of lost pension a week. Which?, the consumer group, reckons that 4.5 million people will be worse off. The Association of British Insurers, whose members include all the personal pension providers, agrees that there will be many losers.

However, what none of these august institutions seem able to say is what savers should do now. Nor has the Government issued any guidance for people wondering whether to contract back into S2P

Pension experts say that there is no right answer. Contract out of S2P and you get a National Insurance rebate paid into your personal pension, which is then invested on the stock market. Ideally, the fund will produce more pension than the state would have paid, but this depends on how much rebate you get - the payments have fallen in recent years - and on the performance of the stock market. Both are unpredictable.

But maybe the S2P decision is not so complicated. Look at it this way - if you can't afford to receive less pension in retirement than S2P would generate, it would be daft to take the risk. In other words, if the FSA's £4-a-week average loss would make a big difference to your standard of living, contract back in, if you're not currently in S2P.

On the other hand, if you don't expect to rely solely on state pensions in old age - because you have savings, say - you may be less risk-averse. If you're not bothered about the prospect of being £4-a-week down, you can afford to gamble, in the hope that your fund does well enough for you to end up better off.

Less risk-averse savers may feel that £4 a week is a price worth paying for a private pension that is under their control, rather than at the mercy of meddling government ministers.

Pension professionals, by the way, including those working at Which?, the FSA and the ABI, will happily say all this off the record. They're just too timid to give the same advice in public. And that's why so many pension savers remain lost on their own desert islands. Just call me Jack.

n n n Watch out, eBay traders. The accountant Blick Rothenberg says that HM Revenue & Customs is about to get tough on people who are using the popular internet auction site to generate an income. The taxman is concerned that it is missing out on millions of pounds worth of income tax because eBay traders aren't declaring their earnings.

The rules are simple. If you're effectively running a business on eBay, you must fill in a self-assessment tax return like everyone else in self-employment - and pay tax on the profits that you make.

The occasional one-off sale on the site doesn't count, but Blick Rothenberg warns that the Revenue is taking an increasingly strict line on whom it judges to be trading.

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