From April 2016 all contracted out pension schemes will come to an end. This is part of the Pensions Act 2014 which saw measures to bring in a single-tier state pension.

What does this mean for you and your employees?

For your employee’s it will increase their national insurance contributions (Class 1 NICs will increase by 1.4% of relevant earnings*). They will also see a change to the structure of the state pension as is moves to a single tier scheme.

Employers will also see an increase in National Insurance contributions from April 2016 (Class 1 NICs will increase by 3.4% of relevant earnings*). So if you are currently offering a contracted-out scheme, you will see an increase in your NIC liability.

In order to help employers offset some of this additional cost the Government intends to allow employers to amend contracted-out schemes to increase employees’ contributions which is also part of the Pensions Act 2014.

This change will have a bigger impact on Public Sector pension schemes such as the LGPS especially as the power to amend the pension scheme is not allowed for public service pensions schemes.

*Relevant earnings are employees’ earnings between the Primary Threshold of £153 a week and the Upper Accrual Point of £770 a week.

Written by Adele Blackham
Published on January 15, 2016