The Government has confirmed that contracting-out of the Second State Pension (S2P) under defined contribution (DC) pension schemes will be abolished from 6 April 2012.

Those who are already contracted-out through a personal or stakeholder pension will not have National Insurance rebates paid to their scheme following the 2011/12 tax year rebate, and those in contracted-out money purchase schemes will begin to pay higher National Insurance contributions from April 2012.

Entitlement to S2P for those who have been contracted-out will start from 6 April 2012, and benefits built up by being contracted-out will remain in the pension scheme until the individual transfers these into an alternative arrangement, or their benefits are paid.

Other contributions being paid to the scheme will not be affected.

The differences that remain surrounding protected rights benefits, which have been harmonised over time with rules governing other pension savings, will disappear from 2012, including the requirement to buy a joint life annuity form protected rights savings, and the need to use unisex annuity rates.

Andrew Tully, senior pensions policy manager at Standard Life, said: "As the Government has confirmed contracting-out will be abolished from 2012, I believe they should now remove the remaining differences between protected rights and other pension savings. Removing these today would make the private pension system much easier to understand as well as improving choice and annuity rates for the estimated ten million people with protected rights savings."

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