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Govt looks at £2bn rise in contracting-out rebate

The Government is looking at a £2bn increase in the contracting-out rebate to prime private saving as an alternative to a citizen’s pension.

DWP officials are bel-ieved to be looking to make contracting out more attractive to reduce dependency on the state.

Recent reductions in rebates to actuarially neutral levels have led to blanket recommendations from product providers that clients contract back into the state scheme.

In 2003, contracting-out rebates stood at over £10bn. Figures show that around 11 million people contrac-ted out through a personal pension today. 9.2 million people were contracted out through an occupational pension at the last count in 2000.

The National Association of Pension Funds is proposing a citizen’s pension which would abolish contracting-out altogether, an opt-ion being considered by Adair Turner’s Pension Commission. Increasing contracting-out rebates is seen by experts as part of an alternative strategy if a root-and-branch overhaul of the UK pension system does not go ahead.

ABI spokeswoman Leo-nie Edwards says: “Because rates are actuarially neutral at present, such an increase could address the advice issues that surround opting out at present.”

Scottish Life group head of communications Alasdair Buchanan says: “An inc-rease of around a fifth feels like it would be enough of an incentive for many people to swing the balance in favour of coming out.”

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