L&G surprised as 80 per cent ignore its pensions advice

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The Independent Online

More than four in five pension savers with insurer Legal & General have opted to remain contracted out of the State Second Pension (S2P), despite being told that they are likely to be better off if they contract back into the scheme.

Earlier this year, L&G wrote to customers with its personal and group pension customers warning them that they should consider moving back into the state earnings-related pension scheme if they are currently contracted out.

L&G said the National Insurance rebates paid to people who use private schemes to opt out of S2P were no longer sufficiently generous for savers to be sure they would produce a better pension income outside the State scheme. However, 83 per cent of L&G's pension customers who have responded to the letters so far, have specifically asked to remain contracted out of S2P.

At first sight, the savers' rejection of L&G's advice that it now makes financial sense for most people to contract back in to S2P looks bizarre.

However, Tom McPhail, the head of pensions research at Hargreaves Lansdown, the independent financial advisers, said many people preferred to remain contracted out because they feared this Government or its successors would make cuts to S2P in the future, reducing the value of their final pension.

The current Government is already in the process of redesigning the state pension system - and S2P will eventually be converted into a flat-rate benefit under the reforms currently being proposed. Further changes to S2P could follow later.

"If you just look at the numbers, then most people should be contracted back in. But there are other factors and these clearly have influenced investors' decision-making," McPhail said. "These include retiring early, taking tax-free cash, and the simple appeal of having direct control over your own pension fund rather than having to trust the government not to fiddle with what's on offer."

Adrian Boulding, Legal & General's pensions strategy director, added: "While it is still early days and we haven't heard from everyone, those who reply quickly have the strongest views, and the results vindicate our stance on the importance of giving customers a choice regarding their contracting-out decision."

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