UK - Proposed new contracting-out rebates for employers sponsoring DB pension schemes would fall around £2bn short, more than double the figure touted by Mercer HR Consulting last week, according to Hymans Robertson, who accused government of not listening to the pension industry.
Government announced that the increased National Insurance rebates companies and individuals would receive when they contracted-out of the second tier of the state pension would rise from 5.1% to 5.3%, despite the fact industry had said it needed to be around 50% higher to accurately reflect the cost of providing the benefits, said Hymans Robertson partner Robert Inglis (pictured).
Mercer last week said the rebates would fall £900m short of what the government actuary recommended to allow for longevity and falling interest rates.
“The rebate is meant to broadly equate to the value of the state pension which you lose when you contract-out,” Inglis said. “But the rebates are far too low. If companies fund their schemes using the actuarial assumptions underlying these rebates then the Pension Regulator would be saying that they are not paying enough and the PPF would be demanding an extra levy to reflect the underfunding.”
Inglis said rebates needed to be around £2bn higher for occupational pension schemes alone in order to achieve a level playing field. “To put this into context, the shortfall in the rebate is almost four times the amount being paid into the PPF this year,” he said.
Inglis called for government to review the issue of contracting-out and the level of rebates in its White Paper this year, and claimed no employer would set up a new scheme on a contracted-out basis with the current terms on offer. “When schemes are modified, more and more will be contracting back in.”
By Damian Clarkson
There is just one week left to register to enter the Workplace Savings and Benefits Awards 2018.