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Govt moots U-turn on state pension cap

Treasury 480

The Government is considering offering a state pension contracting-out concession to defined-benefit schemes as part of reforms to introduce a flat-rate £140-a-week payment for future retirees.

The publication of the much-anticipated state pension reform white paper was delayed in July as ministers struggled to unravel the complexity of the current system. The paper is now expected in the autumn.

Money Marketing understands that a draft of the white paper circulated earlier this year included a provision to allow those with National Insurance contribution records of 30 years or more to continue accruing extra state pension after contracting-out for DB schemes has been abolished.

A source close to the negotiations says: “The Government is planning to allow public sector workers, as well as private sector workers in DB schemes, to keep accruing the state pension beyond the 30-year entitlement.

“Those who have got a 30-year contribution record already were complaining about how unfair it is that they would be paying higher NI but cannot accrue more state pension. So the Government is looking at a special arrangement for people who have a 30-year contribution record who end up paying a higher NI rate because they are no longer contracted-out to be allowed to accrue extra state pension beyond 30 years.”

Hargreaves Lansdown pension investment manager Laith Khalaf says: “If, as looks likely, state pension accrual is going to end at 30 years, this is going to affect people who are contracted-in as well as those who are contracted-out. I cannot see how you could begin to justify a carve out for one group but not the other.”

A Department for Work and Pensions spokeswoman says: “We do not comment on leaked documents. We will publish a white paper in the autumn.”

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