End of contracting-out may be achieved through statutory override, admits DWP

UK - The Department for Work & Pensions (DWP) is considering a legislative override for the abolition of contracting-out, allowing pension funds to circumvent the exact wording of scheme bylaws.

David Haigh, the DWP’s deputy director for workplace pension reform, fell short of guaranteeing such an override at the National Association of Pension Funds (NAPF) annual conference last week, but said the idea was “exactly what [the DWP] was looking at”.

The NAPF’s chief executive Joanne Segars had previously told IPE that the end of contracting-out - triggered by proposed reforms to the state pension that would bring about a single-tier system, ending the state second pension - could be “extraordinarily damaging” if executed wrongly.

Haigh told attendees he would not give “a categorical policy commitment”, but said the possibility of an override was being discussed internally and that the industry had been heard “loud and clear” in asking for such legislation.

Ruston Smith, director of pensions at retailer Tesco, was insistent on the need for “helpful” legislation, as the end of contracting-out not be optional, but a requirement.

“Consultation should be through the legislation, not through discussions with unions and members,” he told attendees, calling for a joined-up approach in communicating the changes that could be misconstrued as a benefits cut, when not presented with the related increase in the state pension payments.

Giving further reasons for the importance of overriding legislation, Smith indicated that former nationalised industries would likely have certain benefit guarantees hardwired into scheme bylaws, an area Haigh admitted the DWP was examining.

Asked if employers may seize the opportunity to make changes to accrued rights, Haigh admitted that some employers might see it that way, but “that ain’t gonna happen”.

He stressed: “We are not messing around with accrued rights.”

Under current proposals, the state pension reforms would bring about a single-tier pension system with all workers entitled to the same basic benefit, independent of means-testing.

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