HC Deb 12 March 1998 vol 308 cc355-6W
Mr. Webb

To ask the Secretary of State for Social Security (1) if she will estimate the effect on the National Insurance Fund in(a) 1999–2000, (b) 2000–01 and (c) 2001–02 of (i) leaving unchanged the expenses loading for contracted out money purchase schemes and (ii) increasing the rebate for contracted out salary-related schemes from 4.6 per cent. to 4.79 per cent; [34097]

(2) if she will estimate the effect on the National Insurance Fund in (a) 1999–2000, (b) 2000–01 and (c) 2001–02 of her proposed amendments to rebates for approved personal pension schemes. [34096]

Mr. Denham

The information is set out in the tables.

Estimated amount of revenue forgone in respect of contracted out money purchase schemes (COMPS) for the tax years 1999–2000 to 2001–2002
Year £million
1999–2000 69
2000–01 142
2001–02 144

Note:

It is based on the assumption that the rebate remains unchanged, and that the number and type of schemes which attracted that rebate do not alter.

As the report by the Secretary of State for Social Security on Certain Contracting-out Terms (Command 3888) explains, there is evidence to show that a significant percentage of schemes which previously contracted-out on a salary-related basis are switching to contracting-out on a money purchase basis. Some are doing this to take advantage of the higher age-related rebates, and others for business reasons unconnected to the rebate. Irrespective of the reasons why schemes are switching to become COMPS, given that many will now be larger schemes, the expense margin contained within the rebate is inappropriate.

Both this Government, and the previous one, made it clear that action would be taken to prevent further losses from the National Insurance Fund if it became apparent that the nature of COMP provision was changing. It is impossible therefore to provide a reliable estimate of what the various changes and behavioural effects imply for the National Insurance Fund. But clearly there would be huge costs if all schemes switched to take advantage of the current higher average rebates for COMPS.

Additional estimated amount of revenue forgone from the national insurance fund should the rebate in respect of contracted out salary-related scheme be increased to 4.79 per cent.
Year £ million
1999–2000 225
2000–01 250
2001–02 250

Extra amount of revenue forgone from the national insurance fund, as a result of increasing the rebates for appropriate personal pensions
Year £ million
1999–2000
2000–01 144
2001–02 154

Note:

There is no change to the amounts paid in the tax year 1999–2000 because the age related top up due for that period is not paid until the following tax year.