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Big firms seek cut in accruals on DB move

The UK’s biggest companies are pressing the Government to allow pension schemes to reduce their minimum accruals to make up for higher National Insurance contributions paid by employers and employees if contracting out for defined-benefit pension schemes is abolished.

Members of DB schemes that have contracted out of the state second pension or Serps are currently entitled to a 1.6 per cent NI rebate. This rebate will disappear if the Government follows through with proposals to introduce a flat-rate, single-tier pension for future retirees.

The Confederation of British Industry is urging policymakers to give pension schemes the power to reduce guaranteed minimum pension accruals for active members. The GMP is the minimum pension an occupational scheme must provide for employees who contracted out of Serps between April 6, 1978 and April 5, 1997.

CBI director for employment affairs Neil Carberry says: “Our proposal will allow currently contracted-out schemes to redesign to reduce benefits by the value of the GMP.

“Employees will still pay more National Insurance but this will be offset by lower scheme contributions. Importantly, this means employees’ take-home pay will not go down, which is a critical concern at a time like this.

“The additional NI that employers will have to pay will be offset by the lower GMP contributions they will have to pay for the scheme.”

Carberry says the proposal could also be adopted by public sector pension schemes.

Hargreaves Lansdown head of pensions research Tom McPhail says: “Contracting out is a significant stumbling block to state pension reform because imposing increased NI costs on employers and workers will be extremely unwelcome. This proposal will help employers but ultimately it will mean less money goes into members’ pensions.”

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