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Flat-rate S2P and axe for contracting out

The Government has ignored pleas not to move to a flat-rate second state pension and to keep the option of contracting out.

The S2P changes mean many thousands of people could be hit by what is being widely seen as a stealth tax on middle-income-earners. The Tories say Labour is bringing in another tax on the back of reform.

There are around 20 million employees paying into the state second pension through National Insurance contributions. The changes proposed mean these employees will have to pay thousands of pounds a year to the taxman for a benefit they will no longer receive.

Contracting out for DC schemes would be abolished when the basic state pension is linked with earnings, while DB contracting out will be phased out by 2030. The S2P will become a flat-rate top-up on the BSP by around 2030.

Aegon UK head of corporate affairs Francis McGee says: “We are disappointed in the move to a flat-rate second state pension and the abolition of contracting out for defined-contribution schemes which increases the Government’s unfunded pension liabilities.”


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