UK - The government has turned the tables on its own pensions strategy by making contracting-out increasingly uneconomical, Mercer Human Resource Consulting claims.
It believes the government’s long-stated aim of passing more responsibility for pension provision to the private sector has been undermined because national insurance rebates are now often worth far less than the state benefits people lose.
Mercer believes the government needs to pay up to £3.9bn a year more in rebates to redress the balance and prevent a surge of people contracting back into the state scheme.
Mercer worldwide partner Dick Strattan said: “In recent years, governments have chipped away at the rebates and changed the ground rules. Investment returns have dropped and people are now living longer, so the economics of contracting-out have changed dramatically.
Strattan added that more firms were now putting new employees into DC schemes, which tended to be contracted into the state second pension increasing the figure by around a million in the last 10 years.
“If the government genuinely wants to promote private funding ahead of state provision it will need to go back to the drawing board,” said Strattan.
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