Scottish Widows is to contract many direct pension customers back into S2P

Scottish Widows will contract many of its direct pension customers back into the state second pensio...

Scottish Widows will contract many of its direct pension customers back into the state second pension this year unless they actively choose otherwise.

The life office has started to write to all customers currently contracted-out of S2P through personal pension plans. Scottish Widows has almost 250,000 customers contracted-out of S2P, with 180,000 introduced by intermediaries, who remain responsible for advising them. No customer known to have an adviser will be contracted back in without a positive instruction.

Around 7,500 direct customers will be contracted back in unless they choose otherwise. They will receive two letters from Scottish Widows telling them of the intention before action is taken.

These customers, all over 50, are particularly likely to lose out financially under the current circumstances if they remain contracted-out, according to the group, although they will be given the opportunity to remain contracted-out.

Ian Naismith, head of pensions market development at Scottish Widows, said a report prepared for the FSA by Oxford Actuarial Consultants in August last year confirmed contracting-out rebate levels are insufficient, on reasonable assumptions, to match the state pension being given up.

"The customers we are contracting back in are those we believe need the highest investment return from their contracted-out pension to match S2P," he noted. "They are also unlikely, because of their current age, to be affected by changes to state pensions, such as an increase to the minimum age when the S2P pension can start. By taking this action, we believe we are dealing fairly with all our customers."