The existing arrangements for rebates of national insurance contributions depend on the basis on which a pension scheme is contracted out.
When an occupational pension scheme is contracted-out on a defined benefit basis, the rebate is made wholly through a reduction in employee and employer national insurance contributions.
When an occupational pension scheme is contracted-out on a defined contribution basis, the rebate is made through a combination of a reduction in employee and employer national insurance contributions and an age-related rebate paid at the end of the tax year direct to the scheme by HM Revenue and Customs.
Personal pension schemes (including stakeholder pension schemes) can contract out on a defined contribution basis. In these cases, the rebate is made wholly through an age-related rebate paid at the end of the tax year direct to the scheme by HM Revenue and Customs.
Once the measures in the Pensions Bill abolishing contracting out on a defined contribution basis come into force, contracting out will only be permitted on a defined benefit basis and rebates will be made under the same arrangements as those currently in place. We are, though, committed to reviewing the situation around five years after the implementation of the pension reform package.