Insurer switches savers to State pension

INSURER Norwich Union is planning to automatically switch its pensions customers back into the State Second Pension (S2P). The group said it believed changes in the economic environment over the past few years had eroded the potential financial benefits of being contracted out of the scheme for the vast majority of people regardless of their age.

The company launched a campaign to encourage its 250,000 customers to contract back in six months ago but only 20% have responded. It will now begin contacting customers who haven't yet opted back in to tell them of the change.

Operations director Mike Kirsch said: 'We are concerned about the high levels of customer inertia on issues such as this and believe that the next logical step is to automatically switch these customers back into the State Second Pension and take the responsible approach for our policyholders.'

Customers who were sold their pension policy direct by a Norwich Union adviser and people who have no adviser registered to their policy will automatically be contracted back in, unless they contact the group to say they wish to remain contracted out. It will give customers six weeks to respond to letters.

A number of pension firms are warning many savers that their private investment will fall short of what they would get from the Government. Companies including Norwich Union, Standard Life and Prudential, have told customers who opted out of State Second Pension to seriously consider returning to the scheme.

On top of the basic State pension, everyone earning more than £79 a week and not contracted out of S2P by being a member of a private scheme, is building up a second, smaller pension paid for with National Insurance contributions. The scheme, formerly called the State Earnings Related Pension Scheme, is designed to top-up the basic pension.

Financial analysts claim S2P could be worth up to £100 a week, but many people would get much less. Payouts depend on earnings and the number of years worked.

However, six million workers opted to take their S2P contributions as a rebate from the Government and invest them in private schemes in the hope of a better return.