State pension reforms could spur contracting-out "bonanza"
Share
Government plans to reform the basic state pension could result in a two-year contracting-out “bonanza”, according to Hargreaves Lansdown.
The proposals, to be put forward in a green paper later this year, would combine all current elements of the state pension into a single universal payment of £140 a week. This could involve the abolition of the state second pension by the end of this Parliament.
Hargreaves Lansdown head of pensions research Tom McPhail says: “Depending on the terms of the review, this news could mean a last bonanza for contracting out into a money purchase pension. For the next two years investors can still receive rebates into their Sipps or personal pensions.
“If they are ultimately going to receive a universal state pension benefit then these rebates could be ‘free’ money.”
Final salary scheme members could see National Insurance payments rise by 1.6 per cent as a result of the reforms, McPhail adds. Public sector workers, who are already facing a 3 per cent increase in contributions following Lord John Hutton’s independent report, will be particularly affected.
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page
Readers' comments (15)
Anonymous | 25 Oct 2010 12:22 pm
How will these new proposals affect the people who have deferred receiving their state pension? Will their pension rise to keep the differential between basic and deferred pension or will some of it be swallowed up in the £140?
Unsuitable or offensive? Report this comment
Anonymous | 25 Oct 2010 12:52 pm
Lets not forget that if this goes ahead without any adjustment, those who've contracted out for years will have a nice protected rights pot/pension as well as receive a state pension that includes S2P. So a hike in their future NI conts in line with those who've been contracted in is a small price to pay!
Unsuitable or offensive? Report this comment
Anonymous | 25 Oct 2010 1:02 pm
Surely it will not be retrospective? Surely it will just be a line drawn in the sand, similar to S2P/SERPs accrual? I don't think the govt would be stupid enough to miss a good few thousand in S2P pot per person.
Unsuitable or offensive? Report this comment
Chris F | 25 Oct 2010 1:07 pm
So all those clients we advised to remain contracted in to the government's "guaranteed" second pension will have lost a fortune.
I wonder who will have to defend complaints? I am sure it will be the FSA who published the guidelines for us to follow...
Unsuitable or offensive? Report this comment
M A | 25 Oct 2010 1:18 pm
What about all of those big insurance companies who blanket contracted everyone back in because it was their 'policy to do so' and people only stayed contracted out if they did something about it. Many didn't understand the letters so were contracted in on the actions of the insurers not through choice - whole can of worms!!
Unsuitable or offensive? Report this comment
Anonymous | 25 Oct 2010 1:41 pm
Free money and thousands recommended to contract back in over the years. I'm off to set up a website offering to help the masses who were mis-sold SERPS/S2P when they could have built up thousands of free money in PR pots, for a fee of course. Copyright pending!
Unsuitable or offensive? Report this comment
m selby | 25 Oct 2010 1:47 pm
I am aged 66 and receiving state pension and the second pension for staying in the scheme.
This adds up to substancially more than £140 proposed,does that mean I lose it surely even the Tories wouldnt do that.
Unsuitable or offensive? Report this comment
Julian Stevens | 25 Oct 2010 1:48 pm
“If [those who contract out] are ultimately going to receive a universal state pension benefit then these rebates could be ‘free’ money.”
After 20+ years of contracting out on a money purchase basis, I wouldn't bet money on it being quite that simple, Tom. D'you really think the government will provide a beefed up flat-rate basic state pension for everyone and just forget about all that's gone before? I don't.
Unsuitable or offensive? Report this comment
Simon Honey | 25 Oct 2010 3:07 pm
There is nothing like pension simpification.
What a waste that exam was then.
So we will now have to revisit all our clients and charge them a fee to consider their next move.
A great way to keep in touch with your clients and do new business.
Unsuitable or offensive? Report this comment
john | 25 Oct 2010 4:44 pm
This cannot make sense as they would also have to disregard all DB and DC protected rights money accrued by 2012 ! A huge number
Unsuitable or offensive? Report this comment