The reforms to the state pension system outlined by Iain Duncan Smith this week have been widely touted as a good thing. As indeed they are, in the sense that something has to done about the state pension system. It is a mess. Two different systems – the state pension and the state second pension – both with different accrual rules, different indexation rules, and with different rules for carers. It is hardly surprising that, as IDS points out, people have no idea how much they are going to receive in retirement. The reforms designed to simplify the system are therefore most welcome.
What is less welcome, however, is the mooted idea that people will no longer be able to contract out. No longer will people be able to say ‘thanks but no thanks’ and have their national insurance effectively paid into their occupational scheme (sadly contracting out on a personal basis is already being abolished). Such a move will see the government take on even further future pension liabilities – as it will be liable to provide a full state pension for everyone – and the government will, no doubt, spend the national insurance contributions that it presently has to refund to other pension schemes on current expenditure.