Examination of Witness

Part of Pensions Bill – in a Public Bill Committee at 3:12 pm on 27 June 2013.

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Steve Webb: One of the problems with the Green Paper version was that because you had been contracted out in the past, you have a deduction from your state pension, called a contracted-out deduction, and you could never do anything about that. It was just like a stain on your record and it would always come off your pension. The difference with the White Paper version is what we have called “Something for something”: once we have taken that deduction off once, in 2016, you can then earn your way back to a full single-tier pension by future years of work. The advantage, therefore, is that people who have been contracted out have the chance to build up a full pension, which they did not previously have.

We think that, across public and private sector, the vast majority of workers will get more back. Although they will pay more NI and lose their rebate, they will get more back in future state pension accrual than they will lose in NI. That is a tough message today—if you face  1.4%, or whatever it is, out of your pay packet, that is a hit—but you will be building up a full state pension of £144, not £110. The vast majority will benefit. Clearly, some will not—some of the highest earners who will have the biggest rebate and perhaps a short period to recover it—but, overwhelmingly, we think it is a good deal.