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National Insurance Contributions: Rebates

Volume 461: debated on Thursday 21 June 2007

To ask the Secretary of State for Work and Pensions (1) what estimate he has made of the number of people (a) aged 44 and over in appropriate personal pensions and (b) aged 48 and over in money purchase schemes for whom contracted-out rebates may not replace foregone state second pension benefits; and if he will make a statement; (141175)

(2) how many UK citizens are in (a) appropriate personal pensions (APPs) and (b) money purchase schemes which are contracted-out; how many of these people are aged (i) over 44 in APPs and (ii) over 48 in money purchase schemes; and if he will make a statement.

Information on the number of people contracted out on a defined contribution basis for the latest year for which validated data are available, broken down by the scheme types and age groups specified, is in the table.

Scheme type

Total in tax year 2003-04 (Thousand)

Appropriate personal pension (including stakeholder pension)

All ages

4,669

Of whom aged over 44

1,157

Contracted out money purchase scheme

All ages

152

Of whom aged over 48

38

Note:

The ‘pivotal age’ for 2003-04 was 52 for both appropriate personal pensions and contracted-out money purchase schemes.

Source:

DWP Information Directorate: Lifetime Labour Market Database one per cent. sample of the National Insurance Recording System.

To ask the Secretary of State for Work and Pensions (1) what action he has taken to inform individuals (a) aged 44 and over in appropriate personal pensions and (b) aged 48 and over in money purchase schemes that their contracted-out rebates may not replace the foregone state second pension benefits; and if he will make a statement; (141176)

(2) whether it is the policy of his Department to encourage people over the age of 40 years to take up opted out defined contribution pension schemes; and if he will make a statement.

Contracting out on a defined contribution basis when over the “pivotal age” (currently 44 for personal pensions and 48 for occupational schemes) is not usually financially beneficial, particularly where there is no employer pension contribution. However, an individual may have their own reasons for making this choice as contracting out offers flexibility not available under the State pension scheme. It is not the Department’s policy to encourage or discourage people from contracting out. It is for individuals to decide what sort of pension provision is best for them, given their own personal circumstances.

Selling and advising on all personal pension schemes, including appropriate personal pensions, is subject to the Financial Services Authority’s rules on marketing and promotion, provision of suitable advice and provision of information at the point of sale. In addition, in relation to contracting out via an appropriate personal pension scheme, The Financial Services Authority Factsheet “The State Second Pension—should you be contracted out?” says that those in older age groups are likely to be financially worse off by contracting out.