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S2P &#39hits defined benefit schemes&#39

Watson Wyatt is calling on the Government to abolish the state second tier pension, claiming it has contributed to the closure of defined-benefit schemes.

In its submission to the Department for Work and Pensions&#39 pension simplification review headed by Alan Pickering, the actuarial consul-tancy says the state should provide only a basic minimum pension for all. It believes the second-tier pension and the complex system of being able to contract out of it have distorted private sector provision.

It also believes that allowing schemes to contract out has led to employers wanting to move away from DB schemes.

The hefty burden of contracting-out red tape has significantly increased costs for employers, according to Watson Wyatt, and it accuses the Government of skewing contracting-out terms to influence private provision.

It says the Government must decide how much the basic state pension should be and whether it should be means-tested and then index it in line with national prosperity.

Watson wants to see a radical overhaul of pensions in Pickering&#39s review and is calling for a single tax regime to govern both occupational and personal pensions.

It is also calling for more tax incentives to encourage long-term saving and suggests the introduction of a compulsory credit insurance for company schemes to protect members from employer insolvency.

Partner Colin Singer says: “Serps and now S2P are a form of compulsion and give the state the opportunity to impose its preferences on private sector pension provision. Employers are voting with their feet on years of accumulated frustration with political interference in pensions.

“It is time to reappraise the role of the state and ensure a clear separation between state and private provision.”

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