The Department for Work and Pensions (DWP) has been urged to press forward with its defined ambition (DA) proposals after contracting out came to an end yesterday.

The abolition of contracting out of the state second pension for defined benefit schemes was announced yesterday in the government’s White Paper on the state pension. As a result of this, Aon Hewitt has warned that private sector DB schemes may be forced to close.

The company’s head of benefit design James Patten warned: “By becoming contracted-in, the cost of currently contracted-out DB plans will typically increase by around 2.5 per cent to 3 per cent of pay as a result of higher National Insurance Contributions from 2017. This news comes at a time when there are significant cost pressures on DB plans from the effect of low gilt yields and the additional costs of auto-enrolment.”

Before closing their pension arrangements however, employers are being told to wait for new defined ambition proposals from the government as it could provide an alternate pension arrangement option for employees.

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