State pension reforms will place further pressure on employers to shut final-salary schemes.
The Department for Work and Pensions proposal for a simplified, flat-rate state pension of £140 would see S2P abolished.
Members who are contracted out could see their National Insurance rebate, which stands at 1.6 per cent of band earnings, revoked.
Companies operating final-salary schemes will face extra NI payments of 3.7 per cent of band earnings.
Hargreaves Lansdown pensions analyst Laith Khalaf says: “For final-salary schemes, this will mean increased NI payments for employer and employee, so that is going to make final-salary schemes even more costly than they are at the moment.”
Towers Watson senior consultant David Robbins says: “If you abolish the option to contract out for final-salary schemes, you say to employers if you want to offer benefits on the same terms it is going to cost you a lot more. They are saying to employers who have been running good pension schemes, you cannot carry on offering such a scheme.”