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Volume 448: debated on Thursday 6 July 2006

To ask the Secretary of State for Work and Pensions if he will estimate the effect on retirement income for pensioners who are members of defined contribution schemes in (a) 2020, (b) 2030, (c) 2040 and (d) 2050 of a reduction equivalent to the value of the contracted-out rebate in contributions. (77998)

The amount of pension derived from the contracted-out rebate for defined contribution schemes depends on investment returns and annuity rates at the point of retirement and it is not possible to predict the amount of that pension.

Where people contract out under such schemes, they forego all or part of their State Second Pension and, in return, part of their National Insurance Contributions is rebated and invested to build up a funded pension. The value of these rebates, subject to an age cap, is actuarially neutral in relation to the State benefit foregone. If a person ceases to be contracted-out, they will start to build up rights to State Second Pension. Given the actuarial neutrality of the rebate, they should generally be no better or worse off in retirement as a result of not receiving the contracted-out rebate.