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End ‘disastrous’contracting out,says IMA chief

Investment Management Association chairman Lindsay Tomlinson told the ABI conference that contracting out has been “an unmitigated disaster” and should be scrapped.

He said the changes made to the contracting-out regime since its introduction in 1978 have made it near impossible to understand for consumers and difficult for IFAs.

His comments came at a breakout session of last week’s conference in London, entitled Developing a Consensus for Action in the Next Parliament.

Some delegates commented that this was hardly an apt title when ABI head of pensions and savings Joanne Segars was the next speaker calling for contracting out to be maintained and rebates improved.

Segars advocated reform of to provide a universal basic state pension lifting people out of means-testing, improved contracting out incentives and 5 per cent employer pension contributions by 2010.

Tomlinson warned that too much time and effort is being spent on modifying legislation around defined-benefit schemes when they are less relevant to today’s workers as most have access only to defined-contribution schemes.

He also pushed aside claims that employers have increased payments into DB schemes as irrelevant because the schemes are in deficit.

Tomlinson advocated a partnership approach to pensions, with the state ensuring against poverty and individuals taking responsibility for the level of their retirement.

He said: “Contracting out has been an unmitigated disaster. It was complicated when it was put in place in 1978 and the tweaks made mean it is near impossible to understand and almost impossible to give advice on it.”

Segars said: “We need radical state pension reform to drag people out of means-testing because 75 per cent of today’s workforce are likely to fall into it.”

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