Government criticised for pensions rebate move

04 March 2006
The government's decision to offer a lower rebate than recommended to contracted-out second state pensions from 2007 has been branded a "stealth tax".

Mercer Human Resource Consulting says that the government will be paying around £900 million less into final salary pension schemes as a result.

The Government Actuary recommended that the rebate paid to companies be set at 5.8 per cent to take into account factors such as increased longevity.

But the government decided to opt for a figure of 5.3 per cent instead, citing "fiscal restraints".

However, while the lower rebate may make people think twice and contract back into the state pensions system, the government will then be able to benefit from more National Insurance contributions, according to Mercer.

Deborah Cooper, principal at Mercer, said that if the government is serious about its pensions reform programme "it could start by providing a fair level of rebate".

"If the Government wants to encourage private pension saving and slow down the trends of schemes closing to future contributions, it needs to be more thoughtful about its policy to occupational pension providers," she continued.

Chris Kenny, director of life and pensions at the Association of British Insurers (ABI), added: "An opportunity has been missed ... to simplify the decision-making process for individuals and help government to spread the cost of future pensions liabilities."

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