Contracting-out RebatesMonday, February 14th, 2011
The Government is required by law to review actuarially the National Insurance contracting-out rebates for defined benefit and defined contribution pension schemes every five years. The rates that will apply from April 2012, subject to confirmation, have been announced in a draft Statutory Instrument.
The contracting-out rebates for
- defined benefit schemes apply to contracted-out salary related (COSR) schemes
- defined contribution schemes apply to contracted-out money purchase (COMP) schemes and to appropriate personal pension (APP) schemes.
As a result, the employer’s minimum payment requirement for Contracted-out Money Purchase (COMP) schemes will be 2.4% from April 2012. For 2012/13, the age-related rebates for COMP schemes, including the 2.4% minimum payment, will range from 2.4% at age 15 (on the last day of the preceding tax year) to 7.4% at age 52 and above.
However, as the Government intends to abolish contracting-out on a defined contribution basis from 6 April 2012, the proposed rebate percentages and age-related payments for COMP schemes are only provided in the Order for just one year and, even then, are not expected to come into force.
The total rebate percentage for COMP schemes also applies to APP schemes, which are contracted-out personal pension schemes. The rebates in the case of these schemes are not handled through the payroll but are made by HMRC in the form of payments directly to the pension scheme of each contracted-out member. APP schemes are also expected to lose their contracted-out status from April 2012 and, as a result, the age-related percentages for APP scheme are also not expected to come into force.