In the White Paper that was published recently, the Government has proposed to abolish contracting out in all defined contribution schemes, as first suggested in the Turner Report.
Getting rid of the rebates from these schemes will divert £3 billion from private schemes to pensions that are not funded, in the form of state benefits. The Government has claimed that this will remove the decision of whether people are better off in, or out of the state second pension. They are also proposing a wider reform of the second state pension by removing the earnings-related part, and turning it into a flat rate benefit, which was also recommended by the Turner Report.
Instead, the second state pension will be linked to average earnings during accrual, and the retail price index when in payment. This is believed to be coming into force around 2030.
In other changes to the state pension, from 2010, the qualifying period for the full entitlement will fall to 30 years for both men and women, from the current ages of 39 and 44 respectively. Retirement age will increase gradually to reach 68 for both men and women by 2046. Under this system, anyone who has worked or cared for 30 years will be entitled to the full basic state pension.
Our view
We believe this is a pre-amble to the State Second Pension Scheme disappearing! In simple terms, we will all still have to pay National Insurance, but part of it will no longer be paid into a second tier pension for you. The Government will keep the money!