HC Deb 13 March 1996 vol 273 cc647-8W
Mr. John Greenway

To ask the Secretary of State for Social Security when he proposes to announce the new levels of contracted-out rebate to apply from April 1997. [20976]

Mr. Heald

The relevant reports by the Government Actuary and my right hon. Friend, the Secretary of State for Social Security, have been laid today together with draft amending orders to establish the level of the rebates for the period beginning in April 1997 in accordance with the Pension Schemes Act of 1993 as amended by the Pensions Act of 1995.

Contracted-out occupational pension schemes and appropriate personal pension schemes provide an alternative to SERPS and thereby relieve the state of part of the liability to provide income in retirement; this is recognised by a rebate on class 1 national insurance contributions. Since April 1993 this has been set at 4.8 per cent. of earnings between the lower and upper earnings limits.

Since the rebate was last set the Pensions Act 1995 has been passed. Amongst other measures designed to restore confidence in the security of pension funds following Maxwell and implement the main recommendations of the subsequent Pension Law Review Committee report, the Act simplified the future arrangements for contracting out of SERPS and introduced a new system of age-related rebates for those contracting out of SERFS into money purchase contracted-out schemes and appropriate personal pensions.

In his report to Parliament, the Government Actuary indicated his view that the contracted-out rebate for salary-related schemes should be set at 4.6 per cent. This figure reflects the fact that, under the new arrangements, individuals will forgo entitlement to the benefits which would otherwise accrue under SERPS; the Government Actuary as required by the new legislation has therefore provided an assessment on the basis of the actuarial value of the SERPS forgone rather than, as at present, the cost of providing guaranteed minimum pensions. We agree with his report and with the figures set out therein, which we propose to split between a 1.6 per cent. rebate for employees and a 3 per cent. rebate for employers.

The Government Actuary's report also discusses the levels of age-related rebate needed in the case of both money purchase and appropriate personal pensions which are required to provide equivalent levels of funded pensions as a replacement for SERPS. His figures include estimates of the expenses of both typical and the more efficient commercial pension providers. We have decided to set the rebates which include an allowance for the reasonable costs and charges of the more efficient providers of appropriate personal pensions and contracted-out money purchase pensions. The new rebates will therefore vary by age from 3.1 per cent. for the youngest member of a money purchase scheme and from 3.4 per cent. for those with personal pensions to a maximum of 9 per cent. We have set the maximum age-related rebates at 9 per cent. to restraint the costs to public finances.

These proposals underline our firm and continuing commitment to the partnership between private and public sector in the provision of pensions. Coupled with our policy of maintaining the value of the basic state retirement pension in line with prices, we believe they will help build on our success in creating a strong pensions structure for the 21st century.