Private pension holders advised to switch to Serps

Thousands
of people with private pensions are being urged by big insurers to switch back
to State Earnings Related Pension Scheme (Serps).

Legal
and General, Prudential, Standard Life and Equitable Life have sent out letters
recommending that men aged 54 and women aged 49 should rejoin the second state
pension., the FT reports.

The
firms say rebates available to those who contract out of Serps are not high
enough to guarantee people will earn enough from their private pension to match
what the state would have given them.

According
to the FT, industry experts expect most to follow the advice, casting new doubt
on the Government’s plan to boost private sector pension savings and reduce
reliance on the state.

The
move comes as an increasing number of firms, including ICI, BT, Iceland, Ernst
& Young, Abbey National and Marks & Spencer, close their final salary
pension schemes to new, and in some cases, existing members.

The
problem lies in the rebates paid to those who have contracted out of the state
second pension to make their own private provision. The rebates are set to rise
in April.

But
Stewart Ritchie, director of pensions development for Scottish Equitable and a
member of the Government’s now disbanded Pension Provision Group, said:
"In the view of many actuaries they are not going up by enough to take
account of increased longevity and the decreased expectations of future stock
market returns."

Paul
Greenwood, head of retirement research at pensions advisory firm William M
Mercer, told the FT: "This is something we would be advising companies to
take into consideration. As many as 3 million people could decide to opt back
into state provision in the next five years."

By Quentin Reade

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