Friends issues “contracted out” abolition reminder
by Gill Montia
Friends Life has issued a reminder that from 6th April 2012 the Government will automatically bring members of defined contribution pension plans, who contracted out of the additional state pension, back into the state second pension (S2P).
The Government will no longer pay national insurance rebates to members’ plans, instead workers will build up an entitlement under S2P.
At the same time, restrictions on how contracted out benefits already built up, known as “protected rights”, can be used at retirement or death will be removed.
Once back in the state system, members will earn an extra £1.60 a week on their state pension for every year that they pay National Insurance Contributions on earnings over £5,044, based on 2010/11 levels.
According to the pension provider:
Those affected do not need to take any action – they will automatically be contracted back into S2P from 6th April 2012.
Pension plan illustrations will now show a single fund rather than separate illustrations for protected rights benefits and other benefits.
The overall value of their pension plans will not be affected.
Their National Insurance contributions will remain the same.
Friends Life head of corporate benefits marketing, Martin Palmer, comments: “We’re concerned that without clear explanations the abolition of contracting out will become another area of pensions that people don’t understand, which will further alienate people from saving.”
He adds: “The benefit customers get in retirement may change so it’s a good idea for anyone affected to use this as an opportunity to review their retirement plans, including any state benefits they will get.”