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Market welcomes contracting-out moves

Industry figures have welcomed Pickering&#39s proposals for changes to the rules for contracting out which propose a break in the link between contracted out rights and other rights.

Pickering is proposing a simpler evaluation of contracted-out benefits and no requirement to provide limited price indexation or survivors&#39 benefits as a precondition for contracting out.

He wants to liberalise the choice on the types of vehicles and forms of benefit that must be bought with protected rights although his report does not give specific details of exactly what form these chan-ges would take.

His report also proposes removal of the restriction on the date at which contracted-out rights are payable, so that employees would accrue protected rights from day one. This move could push up costs for provision for those who stay in their jobs for over two years but would give better protection to early leavers although some sources warn this could also increase admin costs.

Pickering says: “The separate identification and different treatment given to contracted-out rights compared with other scheme benefits adds considerable complexity to pension schemes. The application of different rules to different periods adds to this complexity. We are, therefore, recommending a pragmatic approach throughout.”

Aegon UK deputy manger (pensions development) Rachel Vahey says: “At the start of the process, we said the acid test for the review would be to find a way of simplifying contracting out. Breaking the link between contracted-out rights and other rights is a step in the right direction.”

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