Pru tells customers to opt back in to state pension

Pru tells customers to opt back in to state pension

The insurer revealed yesterday that it will write to customers who are contracted out of the pension, known as S2P, for the 2005/2006 tax year with "updated information and views to enable them to make an informed decision about whether to contract back into S2P or remain contracted-out".

The letter will say that Prudential strongly believes most people should contract back in for the 2005/6 tax-year onwards. The firm believes rebates paid by the government to people who opted out will provide less than the state second pension at retirement.

"We are supportive of the concept of contracting out as we believe this helps to spread the cost of future government pension promises as well as allowing people to take greater personal ownership of their pension arrangements," said Tom Boardman, Prudential UK's director of policy development. "However, it is important that individuals are adequately incentivised for the risks being taken by opting out of the state second pension."

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Mr Boardman said the company's view was that the rebate levels for the 2005/6 and 2006/7 tax years would not provide a sufficient incentive for the majority of its customers to remain contracted out.

"There are differences in the benefits people can receive when comparing the benefits of opting in or out including tax-free cash and age of retirement," he continued. "These factors need to be considered carefully by individuals, taking account of their personal circumstances."

The letter will highlight the main differences of contracting in or out of the state second pension to help customers come to a decision.

This is not the first time the insurer has written to advise customers to contract back in to the state second pension, although it has never advised all of its contracted out customers to do so before. In December 2004 the firm advised men over 60 and women over 54 they would be contracted back in unless they contacted the company to specify otherwise. In that instance, 59,000 customers contracted back in.

If customers decide to contract back in after receiving the latest letter, they will have to contact Prudential by a set deadline.