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Minister admits means- testing will hit buyback

The Government admits it expects a low take-up of the option to buy back class three National Insurance contributions due to the negative impact of means-testing.

Work and pensions minister Rosie Winterton was responding to a question in Par§liament about why it was estimated that only 20 per cent of eligible individuals would purchase additional NI contributions.

Winterton said: “While basic state pension entitlement could increase, for some people, overall income may not, because of the interaction with income-related benefits, such as pension credit, housing benefit and council tax benefit.”

Scottish Life head of pensions strategy Steve Bee says he cannot understand why the Government is not taking this into account when it calculates the take-up of personal accounts, which will also be exposed to the negative impact of means-testing. Bee believes this will lead to many people opting out when the scheme is introduced in 2012.

He says: “What I cannot understand is why there are not similarly low expectations of the number of people who will take up voluntary pension saving after 2012 once the new pension laws kick in.”

Hargreaves Lansdown pensions analyst Laith Khalaf says: “I am not surprised by their estimations of low take-up. There are lots of reasons why you might not want to buy them back and means-testing is one of them.”

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