Pensions Fit: Employer Powers on Abolition of Contracting-Out

The State Second Pension will be abolished from 6 April 2016. From this date, all pension plans that still contract-out of the State Second Pension will cease to do so. As a consequence, sponsoring employers and active members of these pension plans will see their lower, contracted-out National Insurance contribution rates end. Employer and active member NI contributions will increase to the standard rate.

In this publication we consider how an employer can make use of a new statutory amendment power to increase employee pension contributions and/or alter the future accrual of pension benefits, to help offset the cost of the increase to the employer’s NI contributions.

Employers wishing to use the new statutory amendment power are advised to plan well ahead to ensure that the process can be completed by their target implementation date.