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Gov’t confirms abolition of contracting-out for DC schemes

The Government’s decision to abolish contracting-out for defined contribution schemes will result in a £51bn transfer of future pension rights from private pensions to the state pension system, a Government impact assessment shows.

Legislation passed this week confirms members of DC schemes will no longer be able to contract-out of the state pension from April, 2012. The Government says this will increase the money available to spend on state pensions by £51bn between now and 2060.

Hargreaves Lansdown pensions policy analyst Laith Khalaf says it remains “unclear” whether the transfer has been factored in to Government proposals for reform of the basic state pension.

He says: “The DWP have run a projection of contracted-out rebates through to 2060 and worked out that, in today’s money, that’s £51bn that would be paid in rebates that the state will now pay at some stage.

“It’s a large switch from private pension provision to state pension provision.”

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