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Compulsion already exists for employees

Am I the only person who thinks there is a compulsory pension regime already? There has been compulsion since graduated pensions, then Serps and now the state second pension.

Leaving aside the basic state pension and people earning less than the lower earnings limit, if you are an employed person, you were contracted in to the old Serps and now the new S2P and you pay a higher rate of National Insurance levy to pay for it. The only way you are not contracted in is if your employer provides an occupational pension which is at least equivalent to the Serps or S2P given up.

Everyone pays a higher rate of NI to fund Serps/S2P unless there is an occupational scheme of sufficient quality to entitle it to contract out. Employer and employee may then qualify for a reduction in NI rates.

Even if the occupational pension is contracted in, many people who pay this higher rate of NI find they may be better off using a personal pension to contract out of Serps/S2P. This does not mean a reduction in their NI but does mean the Government contributes an NI and tax rebate into the personal pension.

I apologise to pension advisers to whom this is obvious but this is clearly not known to either side of the House of Commons, the TUC or various consumer bodies and journalists.

The target market for extra pension contributions is the band of workers earning between the lower and upper earnings limits for NI and this band is already compelled into pensions.

Leaving aside the provision of basic state pension, whichever way you look at it, there is only one category of economically active persons who do not make compulsory pension contributions – self-employed sole traders and partnerships.I concede that one could make a case to compel this group to contribute to a form of pension.

If the Government attempts to introduce further compulsion, I predict it will have a fight on its hands. Voters will not take kindly to a second tier of compulsion, especially when the first two tiers of basic state pension and Serps/S2P are such poor value and being perennially tinkered with. If, as an employee, I am compelled to make specific pension contributions, I fully expect and will demand a substantial reduction in my NI levies.

H Jamieson

Hunter Jamiesons Financial Services, Barnhill, Dundee


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