Should you rush back into Serps?

One or two companies have taken decisive action on this issue. In June last year, the insurer Axa effectively recommended that millions of people contracted out through personal pensions should all contract back into the state scheme, saying that at current levels, "no one should contract out... unless the levels of rebates are increased, anyone who is currently contracted out should contract back in".

Meanwhile, HSBC took the decision to contract back in all of its 51,000 personal pension customers after concluding that in almost every case, it was better for them to be in rather than out.

And early last year, Legal & General mailed almost 100,000 contracted-out pension policyholders and en couraged them to review their position. As a result, almost 14,000 people have decided to contract back in.

About 40 companies are taking part in the initiative. To be fair, the factsheet, called "Contracting out: it's your choice," is informative and does say that if you're a man aged 60-plus or a woman aged 54 or over, "your pension from contracting out is very unlikely to match the state second pension you are giving up".

In other words, these age groups should contract back in pronto. Everyone else will have to make up their own mind. The Association of British Insurers defends the decision not to give people advice on what to do next, saying: "It's such a personal choice."

However, the factsheet is laced with lines such as "You should not assume you will gain financially by staying contracted out," which seem to hint that, in general, it's better to be in than out.

Many pension companies and IFAs are reluctant to give advice on this issue because it's such a minefield. However, Which? magazine says contracted-out personal pension holders who are at all risk-averse should contract back in, and adds: "If you're in your 40s/50s you should be back in the state scheme."

Tom McPhail at IFA Hargreaves Lansdown says his firm is one of those that won't explicitly tell someone whether they should contract in or contract out because there are so many variables involved.

However, he says the characteristics of someone for whom contracting out may be suitable could include a younger investor (aged in their 20s or 30s), above-average earnings and a willingness to accept some investment risk.

Where to get help

· You can download a copy of the factsheet at the Association of British Insurers website (pdf).

· You can also find out more by going to the Department for Work and Pensions' website - which has a section on Serps and its replacement, the state second pension

· The Financial Services Authority has a factsheet on contracting out of the state second pension which is available online (pdf).

· OPAS, the Pensions Advisory Service, is an independent non-profit organisation that provides guidance on the whole spectrum of pensions. OPAS operates a national telephone helpline on 0845 601 2923 - enquiries to this line are charged at local call rates.