The government has decided to abolish contracting out of the State Second Pension (S2P) through money purchase pension schemes. This is likely to happen from 6 April 2012, but it could be later.

Most money purchase pension annual statements contain a Statutory Money Purchase Illustration (SMPI). By law, from 1 September 2009, these will have to assume that protected rights contributions will stop from no later than 2012.

What this means for our customers

For contracted-out planholders we’ll now assume no more rebates will be payable after 5 April 2012, which may result in lower values for their SMPI retirement fund values and pension in their annual statement compared to previous years’ statements.

This will be a more realistic projection of the future benefits from their policy, and although the values may reduce, it has to be remembered that their overall benefits at retirement could include S2P benefits from the government.

Standard Life said the cost of the remediation is expected to result in an additional pre-tax charge of approximately £100m against profits in 2008.

The Pension Sterling fund was devalued by 4.8 per cent on 14 January, leaving investors out of pocket.

Standard Life has subsequently come under increasing fire to remediate investors, as many advisers and customers claimed they were not aware that the fund’s investments included mortgage-backed securities.

In a statement to the market, Standard Life conceded: “This decision is a reflection of our belief that many people were not fully aware of the nature of the fund, and that some customers could not have anticipated that the value of their units could fall by such an amount in one day.”

It said a review of its literature and feedback from customers and advisers had highlighted that many were not fully aware of the nature of the fund, or would have anticipated that units in the fund could fall by such an amount in one day.

The insurer added: “With hindsight, some of the literature we provided in respect of this fund fell short of our own high standards.

“Against this background, we feel strongly that the right thing to do is to put all customers back to the position they would have been in had we not reduced the value of the fund on 14 January.”

Customers who have switched to another Standard Life fund since 14 January will also have the value of their investment adjusted to reflect today’s announcement.

Meanwhile, those who have since retired or transferred out will receive a separate letter from Standard Life to explain how they will benefit.

John Gill, managing director of customer service, said: “Standard Life would like to take this opportunity to apologise to any customers who have been affected by the fall in value of this fund. In hindsight, some of the literature supporting the fund fell short of our own high standards, and it is important that we put this right.

“We have listened to our customers and advisers and believe that our response underlines our commitment to our long-term relationship with them.”