Pensions minister Steve Webb insists the abolition of contracting out would not necessarily force the UK’s remaining defined-benefit pension schemes to close.
If the Government introduces a flat-rate, single-tier benefit, companies currently offering DB pensions would see their costs rise. This is because under the current regime, DB schemes are able to contract out of the state second pension and receive rebates on their National Insurance contributions. If contracting out is scrapped, rebates will end, increasing employer NI costs by 3.4 per cent.
Speaking to Money Marketing, Webb says: “Companies that are still offering salary-related pensions are doing so because they suffer the same problems around investment and long-evity uncertainty as everyone else and yet they are still holding on there. For some of them, it is part of the employee benefit package and it is something they value. It does not need to be the death knell if companies value that kind of provision.”