Government plans to reform the basic state pension could result in a two-year contracting-out “bonanza”, according to Hargreaves Lansdown.
The proposals, to be put forward in a green paper later this year, would combine all current elements of the state pension into a single universal payment of £140 a week. This could involve the abolition of the state second pension by the end of this Parliament.
Hargreaves Lansdown head of pensions research Tom McPhail says: “Depending on the terms of the review, this news could mean a last bonanza for contracting out into a money purchase pension. For the next two years investors can still receive rebates into their Sipps or personal pensions.
“If they are ultimately going to receive a universal state pension benefit then these rebates could be ‘free’ money.”
Final salary scheme members could see National Insurance payments rise by 1.6 per cent as a result of the reforms, McPhail adds. Public sector workers, who are already facing a 3 per cent increase in contributions following Lord John Hutton’s independent report, will be particularly affected.