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National insurance rebate change could hit pensions

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Criticism has been aimed at a move which will see national insurance rebates cut on pensions.

The rebate on defined benefit pension schemes currently allows employers to receive a rebate for contracting out of the state second pension, with a percentage of the national insurance paid being refunded.

The rebate, however, is to be reduced from 5.3 per cent to 4.8 per cent.

The employer rebate is to drop from 3.7 per cent to 3.4 per cent, and the employee rebate from 1.6 per cent to 1.4 per cent.

The National Association of Pension Funds (NAPF) attacked the decision, arguing it would hit the value of final salary pension funds.

NAPF’s chief executive, Joanne Segars 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.”


Neil Carberry, the CBI’s head of pensions policy, added: “It is regrettable that the Government has chosen to further cut the value of the contracted out rebate, effectively raising taxes on the members and sponsors of defined benefit pension schemes.

“This is not a tax break but funds the provision of a replacement for the second state pension in the employers’ scheme. In recent years, rising longevity has made providing that replacement more, not less, expensive even taking into account the change in state pension age.”