Contracting-out to be abolished in 2012

Contracting-out of the state second pension is to be abolished from 6 April 2012, the Government has confirmed.

Standard Life says the change should remove some of the differences between protected rights and other pension savings, with benefits for consumers.

The 2011/12 tax year will be the last opportunity for people in defined contribution schemes to contract-out of the state second, and those using personal or stakeholder schemes will receive no further National Insurance (NI) rebates after April 2012.

Defined benefit scheme members who have contracted-out will not be affected.

Andrew Tully, pensions policy manager at Standard Life, says the change should result in further harmonisation of protected rights - the money built up by contacting-out - with other pension savings.

"As the Government has confirmed contracting-out will be abolished from 2012, I believe they should now remove the remaining differences between protected rights and other pension savings," he explains.

"Removing these today would make the private pension system much easier to understand as well as improving choice and annuity rates for the estimated ten million people with protected rights savings."

Currently, savers who are married or in a civil partnership must buy a 50% pension for their partner with their protected rights. However, they cannot combine the money to buy a joint annuity, adding considerable extra administrative costs.

Standard Life says the abolition of contracting-out should lift these barriers and result in a better deal for consumers.