The Department for Work and Pensions (DWP) has announced that the contracted-out rebates for defined benefit schemes are to be reduced from 6 April 2012.

From 6 April 2012 to 5 April 2017, rebates on national insurance contributions (NICs) for employers and employees in contracted-out salary-related schemes will be set at 4.8 per cent of band earnings, compared with the current rebate of 5.3 per cent. This will be split 3.4 per cent for employer NICs and 1.4 per cent for employee NICs).

The announcement follows a consultation conducted by the Government Actuary’s Department (GAD) in 2010. The rebates reflect GAD’s ‘best estimate’ approach, but are the lowest of the three proposed bases recommended.

A draft statutory order setting out the proposed rates for 2012/2013 has also been published. At present, the requirement to review defined contribute rebates every five years remains in place, despite the fact that the DWP intends to abolish contracting-out of a defined contribution basis from 6 April 2012. Accordingly, as the figures are not expected to be used, they have only been provided for one tax year.

To view the DWP’s quinquennial review of contracted-out rebate rates online, please click on the following link.