The Government is proposing to subsidise lower earners with top up payments to ensure they remain within their occupational pension schemes.
The move is detailed in proposals for the rebate structure under the State Second Pension and follows concern that many of the low paid earning less than £9,500 a year, would be better off opting out of company schemes in favour of S2P.
To encourage the lower paid to stay in company schemes the Government will pay subsidies in the form of an increased top up via the S2P reflecting the difference between their actual earnings and £9,500.
The Government also set out the possible structure of contracted out rebates under S2P.
The proposals offer two approaches the first provides for subsidies for the those below the £9,500 lower earnings limit and then enhanced rebates to all other forms or contracted out arrangements.
But in return the occupational schemes will need to provide enhanced benefits.
The provides second provides the top up for those below the LEL extending and this top up to contracted out members earning less than £21,600 a year without the need for additional benefits.
Pensions minister Jeff Rooker says: “The paper sets out proposals for the future contracting out regime. They directly address the position of people on lower earnings who might be better off in the state scheme rather than in their existing private pension scheme.”
Liberal Democrat social security spokesman Steve Webb says: “Finally the Government has woken up to the issue of people on low earnings opting out of occupational schemes. They have finally shown some awareness of the implications of the effects that stakeholder and S2P will have on occupational pensions schemes.