Trustees of contracted-out schemes: Ending contracting-out of the additional State Pension
Updated 19 July 2016
© Crown copyright 2016
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This publication is available at https://www.gov.uk/government/publications/new-state-pension-information-for-employers-and-trustees-with-open-contracted-out-defined-benefit-pension-schemes/trustees-of-contracted-out-schemes
The introduction of the new State Pension from 6 April 2016 will deliver a clearer State Pension for future pensioners. Contracting-out of the additional State Pension ended on 6 April 2016.
Contracting-out certificates were automatically cancelled.
Contracted-out employees and their employers now pay the standard rate of National Insurance (NI) contributions and no longer receive the NI rebate.
Private sector employers are able to amend their scheme to help offset the increase in their NI contributions by reducing future accrual of benefits and also by increasing members’ contributions. Provision in the Pensions Act 2014 allows private sector employers to do this without Trustees’ consent.
The end of contracting-out does not impact on members’ accrued rights, for example guaranteed minimum pensions (GMPs). Going forward, the ending of contracting-out will mean that there will be some changes in terms of how the schemes will operate. Trustees will need to check whether any of these changes affect their scheme.
HMRC no longer track which schemes hold GMPs and other contracted-out rights for individual members. Commencing December 2018 HMRC will provide members with details of their contracted-out scheme memberships.
If you have not done so already, you should:
Check what impact the ending of contracting-out will have on your scheme and how it will operate going forward.
Discuss the ending of contracting-out with your advisers and consider checking whether your sponsoring employer will make changes to benefits accruing after April 2016 and also increase member contributions.
Agree timescales for implementing any changes with your advisers and administrators
Ensure your records are up-to-date and hold the same information about members’ GMPs and so on as HMRC currently hold.
Notify your members about the ending of contracting-out and any changes being made to their benefits and contributions. The Department for Work and Pensions (DWP) has published an employee fact sheet to help you do this. Review your member booklets and other documentation.
Ensure your administrators are aware that contracting-out has ended and that their systems and processes need to be amended if this has not already taken place.