The government has confirmed its decision to abolish contracting-out for DC schemes by April next year. An impact assessment done by the treasury shows that the move will result in benefits transfer of £51 billion from private pensions to state pensions in the future.
Legislation passed this week prohibits members of DC schemes from contracting-out of state pensions from April 2012. Government estimates show that the move will alone result in additional income of £51 billion between now and 2060, enabling it to spend the additional amount on state pensions.
However Laith Khalaf, a pensions analyst with Hargreaves Lansdown remains skeptical about the government projections and said it is not clear if the treasury has factored in the transfer amount for reforming the basic state pension.
“The DWP have run a projection of contracted-out rebates through to 2060 and worked out that, in today’s money, that’s £51bn that would be paid in rebates that the state will now pay at some stage. (However) It’s a large switch from private pension provision to state pension provision”, he said.