Contracting-out of the state second pension is to be abolished from 6 April 2016, coinciding with the introduction of the new single-tier state pension. This will increase national insurance contribution liability for employers currently offering a contracted-out scheme. Legislation is now in place enabling employers to amend schemes to take account of the increase in NICs which will take effect when contracting-out is abolished. The power to amend can be exercised by the employer before 6 April 2016 but cannot be effective until that date, and can be used more than once. In other words, amendments made under the regulations cannot be used to create a windfall for the employer. They can only be used to set off the additional NIC liability the employer will have as a result of the abolition of contracting out (3.4% of relevant earnings).
Key considerations for employers at this stage include:
what (if any) changes are to be made to benefit accrual or contributions; entering the reconciliation process with HMRC to ensure the correct data is held; and making plans for the communication of changes to employees.
The change in state pension provision could also impact on schemes operating state pension offsets or offering bridging pensions. It is vital that employers check their rules to asses whether there will be any cost or benefit implications and if so urgently consider what changes they may wish to make.
The DWP has issued a series of factsheets for employers, trustees and employees summarising what is happening and any steps they should be taking.
Getting out of contracting-out - consultation deadline 16 November 27 October 2015
The Department for Work & Pensions are running a brief public consultation on the draft order of The Pensions Act 2014 (Abolition of Contracting-out for Salary Related Pension Schemes) (Consequential Amendments) Order 2016. As you might imagine, and as we approach the end of Contracting-out, amending all relevant legislation presents Government with a fair logistical challenge. The latest public consultation is asking for views on the “2016 order” aka The Pensions Act 2014 (Abolition of Contracting-out for Salary Related Pension Schemes) (Consequential Amendments) Order 2016, which, amongst other items and for the most part, contains ‘minor and technical changes to other secondary legislation’ to take account of the end of contracting-out.
The 2016 Order is separated into six parts. Part 1 provides details of citation and the dates the various parts of the regulations come into force. Parts 2 to 6 detail:
Part 2 - Amendments coming into force immediately before 6 April 2016 Part 3 - Amendments coming into force on 6 April 2016 Part 4 - Amendments coming into force on 6 April 2017 Part 5 - Revocations coming into force on 6 April 2019 Part 6 – Amendments coming into force on 6 April 2021
Full details of the changes being made are available within the consultation paper along with the draft order .
Two questions are being asked within the consultation:
Consultation Question 1
Do you agree that: a) the amendments in the 2016 Order are necessary as a consequence of contracting-out ending on 5 April 2016? b) they protect members’ accrued rights? c) they ensure schemes are able, post abolition, to carry out their administrative functions?
Consultation Question 2
In addition to the amendments to the legislation set out in this consultation, is there any further legislation that you consider should be revoked, amended or saved as a consequence of the ending of contracting-out?
The closing date for making a response is 16 November. Responses should be made to CONTRACTING.OUTTEAM@DWP.GSI.GOV.UK .
CIPP Policy News Journal
25/04/2016, Page 353 of 453
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