Pension changes could impact company accounts

Date: 19th August 2010

Possible changes to final salary pension schemes could lead to employees paying more in national insurance.

Asset management firm Hargreaves Lansdown has argued that the government should consider scrapping the practice of contracting out into final salary schemes.

The move, which is being considered by the Department for Work and Pensions, is absolutely essential in order to simplify the pensions system and creating greater equality between defined benefit and defined contributions, the company said.

This is especially the case if the government wishes to roll the state second pension into the basic state pension to provide a higher universal pension.

However, it would also mean that many employers and employees would have to make bigger national insurance contributions, as currently workers receive a 1.6 per cent discount on national insurance, while their employers receive a 3.7 per cent discount.

Laith Khalaf, pensions analyst at Hargreaves Lansdown, commented: "Abolishing contracting out for final salary schemes would undoubtedly cause teething problems in the short term. But the payoff is it could ultimately pave the way for a simpler and higher universal state pension for all."

Posted by Jacob Williams