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Willetts warns against ending contracting out

Shadow Work and Pension Secretary David Willetts has highlighted the difficulties of abolishing the state second pension.

Willetts warned conference delegates that abolishing contracting-out and the subsequent loss of National Insurance rebates would force many weaker schemes to close.

Although he accepted that rebates at current levels are not sufficiently attractive to make contracting out an attractive option, Willetts said simply abolishing S2P is a risky strategy.

However, he added that it is financially impossible to pay a higher basic state pension without abolishing contracting-out and consolidating S2P into a single universal system.

Willetts said one alternative would be to consolidate contracting-out rebates into a pound-for-pound contribution-matching system and launch a longevity bond to help schemes better match their liabilities.

He said: “Contracting-out rebates should be kept in some form. Many schemes are so weak and vulnerable that the loss of rebates could push many over the edge and into closure.

“The only plausible way of funding a higher basic state pension is by abolishing contracting out, which I think is too risky.”

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