Government issues new contracted out rebate rates for DB pensions

The government has announced details of the contracted-out rebate rates for defined benefit (DB) pensions schemes.

If an individual is contracted out of the State second pension, the employer and employee pay national insurance (NI) contributions reduced in total by 4.8%.

To create the new 4.8% rate, employer rebates are falling from 3.7% to 3.4%, and employee rebates from 1.6% to 1.4%. The new rebate rates will apply from 2012 to 2017,†

Steve Webb, pensions minister, said: “The current reduction in NI contributions is provided at considerable cost to the tax payer. The government has a duty to ensure the rebates are set at a level which is fair to all, and that the rates are not seen to favour those who are contracted out of the State second pension.”

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: “This is a stealth tax on people saving into a pension, and a further squeeze on the employers trying to help them.

“Cutting the value of the rebate will raise the operating costs of final salary schemes, and is likely to spur more employers to close these pensions to staff.

“The government should be supporting workplace pension schemes, not saddling them with extra costs.”

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