Private opt out cut your pension

The Financial Services Authority (FSA) said this week that people who have followed the government’s urgings to “contract out” of a state pension scheme will be on average £4 a week worse off than those who stayed put.

Three million people have chosen to pay cash into their personal pension rather than the S2P, or its predecessor Serps. These are top-up, earnings related pensions which employees are entitled to in addition to the basic state pension.

From 1988 onwards you could contract out. You still paid the same rate of national insurance, but a portion of these payments, known as a rebate, was paid over to a pension firm each year.

The Tories, and then Labour, lauded the great promise of pension wealth that was possible from a soaring stock market.

But now these investments have let people down — a warning of the risks involved with private pensions. Yet the government, and many trade union leaders, still see private pensions as the way forward.