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Pensions Rethink Urged For Younger People

By Nicholas Timmins, The Financial Times

United Kingdom

July 6, 2004

Hundreds of thousands of younger people should be considering switching back into the state second pension because the rebates for staying out of it are no longer good value for money, one of Britain's biggest pension advisers said on Monday.

The government has "turned the tables on its own pensions strategy" - aimed at sharply increasing the amount of retirement income that comes from private savings and cutting the proportion that comes from the state - by pitching the rebates for contracting out of the state system too low, said Mercer Human Resource Consulting, the actuaries.

"National insurance rebates given by the government are often worth far less than the state benefits lost by contracting out," Mercer said, arguing that the sum needs to be up to £3.8bn a year, or about 50 per cent higher than it currently is.

Already insurers and pension companies are advising many people in their 50s to consider contracting back into the state system. But Deborah Cooper, a partner at Mercer's, said that advice now applied to many younger people, particularly those in their 20s and early 30s.

"If people in their 20s and 30s have contracted out because they think it is a good deal, they really ought to think again," she said.