Pensions are investment funds that are paid to the investor once they are retired. Pensions are the main source of income for retired people. While there are many other types of investments that may provide income for retirement, pensions are the most common.
There have been many cases where individuals were poorly advised to opt out of their state second pension (S2P) and pay money into other alternatives. The Financial Services Authority (FSA) estimates that on average those that contracted out in 1988, the first year it was possible to do so, are being paid pensions that are £4 a week less than if they had not opted out. Every employee builds up an entitlement to a second tier of state pension benefits, on top of their basic state pension, through the S2P and previously SERPS.
Roughly three million people have chosen to opt out of their S2P (formally called the SERPS, prior to 2002). in 2006 Norwich Union, the UK's biggest insurer, advised its pension savers to opt back into their S2Ps. You are strongly advised to carefully consider all your options before opting out of your S2P.