The trouble with hindsight

Hindsight is a wonderful thing.

It allows us to review prior decisions in light of new developments, reaching conclusions about whether a course of action was ‘right’ or ‘wrong’.

The trouble with hindsight is that it is only available to us after the event, sometimes a long time after the event.

With reforms to the State pension being introduced over the next few years, hindsight can be applied to previous decisions to contract-in to the State Second Pension (S2P).

John Lawson from Aviva has pointed out in Money Marketing today that up to 2.5 million savers who had previously been contracted-out through a personal pension were contracted back in to S2P.

As a result, they could have missed out on £2.5bn a year of contracted out rebates, totalling up to £20bn which could now be lost forever in many cases.

The pressure on pension providers to contract their customers back in to S2P was prompted by misselling concerns and reports commissioned by the consumer group Which? in 2003 and then by Financial Services Authority (FSA) suggestions in 2005 that it would be in the best interests of savers.

At the time, both were probably right to suggest savers should contract back in to S2P.

The maths back then didn’t make contracting-out a logical choice for anyone other than the most adventurous investors.

Not everyone who contracted-in to S2P after being previously contracted-out will be a loser in the State pension reforms.

Those who built up a State Second Pension bringing their total State pension benefits to in excess of the new flat rate £144 per week could be better off, assuming they become entitled to this benefit before 2017.

Those who get the flat-rate State pension and see their S2P benefits wiped out by the reforms will naturally be disappointed with the decision to contract-in.

When making decisions about investing and financial planning, you can only ever do so based on the facts at the time.

There is always the risk of political interference resulting in changes to the rules and regulations surrounding financial policies, particularly pensions.

Being aware of these risks of change is important; using the risk of change to delay making important decisions can be financially disastrous.

Photo credit: Flickr/Trodel