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Adviser > Technical Central > OPS Matters > Changes to contracted out rebates
Changes to contracted out rebates
You may have come across some recent press coverage of the changes to contracting out rebates with effect from April 2007, so I thought I’d remind you of the key changes;
Defined benefit occupational schemes
- In the tax year 2006/2007, if an individual was contracted out of the state second pension (S2P), the employer and the employee National Insurance Contributions reduced in total by 5.1%.
- With effect from tax year 2007/2008, if an individual is contracted out, the employer and the employee National Insurance Contributions are reduced in total by 5.3%.
Defined contribution personal pension schemes
- The age related rebate was previously capped at 10.5% and from April 2007 the cap reduced to 7.4%.
- The rebates below the cap increased between 0.5% an 1.9% with effect from April 2007.
How does this affect people who are contracted out?
It depends on the age of the person. Generally contracting out is more attractive for younger people. However, it's advisable for everyone to review their decision whether to contract in or out of S2P.
The future
With the proposed abolition of defined contribution contracting out, this will probably be the last major change to rebates.
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