David Prosser: Pensions bribe has created 6m losers

When dodgy timeshare salesmen offer cheap and nasty free gifts to lure holidaymakers into overpriced rip-offs that last for years, consumer watchdogs rightly get mad. But the only difference between the cowboy end of timeshare and what has happened in the murky world of state pensions is that the latter has been a government-sanctioned con.

Bad enough that, in 1988, the then Conservative government began offering a few measly quid to persuade millions of savers to opt out of the state second pension scheme, then known as Serps. Even worse, it also decided to throw money at financial advisers and insurers to help them persuade us that opting out was a good idea.

For those with short memories, by the end of the Eighties, the Tories were desperate to cut the social security budget. So they came up with a cunning plan to get people off the state pension books. Savers were advised to contract out of Serps – which became the state second pension (S2P) in 2004 – into a private pension.

To persuade them, savers were offered a rebate of National Insurance contributions plus, in some cases, a bonus top-up to their plans. Insurers and advisers were encouraged to sell the idea with generous sales commissions and plan charges. The government and the pensions industry said the rebates, once invested in a well-run private plan, would grow to be worth much more than people could expect to get from the state.

Unfortunately, the contracting-out affair has turned out to be an unmitigated disaster. A combination of poor stock market returns and falling National Insurance rebates has hampered savers. As a result, the majority of the 6 million who opted out of Serps are likely to get a smaller income from their private pensions than the State would have paid. Which?, the consumer organisation, says many people will get 60 per cent less.

However, no one is prepared to take responsibility for this scandal. Yesterday, the Pensions Advisory Service, an independent service offering free guidance on pensions, warned that many of the financial advisers who originally told people to opt out – independent firms, or those working for insurers – are now refusing to help savers decide what to do next.

A few large pension providers have behaved responsibly. Insurers such as Norwich Union, HSBC, Axa and Standard Life have warned savers about the dangers of remaining contracted out of S2P. But most companies are quietly hoping the issue will disappear.

The Pensions Advisory Service wants the government to require advisers to help savers review their options. But that plea is, sadly, likely to fall on deaf ears. So far, the government has maintained an ominous silence on the whole issue. Given that it created the mess in the first place, don't expect that to change.

There is no longer any reason to be caught out by a fee-charging cash machine. New rules introduced yesterday require ATMs to carry an external sign warning users if they'll have to pay a fee. There must also be an additional warning on the screens of machines.

The new rules are a sensible compromise. Some campaigners are furious that any cash machine should be allowed to charge. But the companies providing fee-charging machines – which operate independently of banks – provide a valuable service.

These firms have expanded the machine network. Many people, who previously had to make inconvenient journeys, can now get cash in local shops, garages and post offices.

d.prosser@independent.co.uk