NIM01202 - Class 1 structural overview from 6 April 2009: background

Section 22 of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992)

The Upper Accrual Point (UAP) was introduced on 6 April 2009 as a change to the State Second Pension (S2P) and introduced a new threshold for the calculation of both S2P and contracted-out NICs rebates.

This meant that from 6 April 2009 employers and employees with occupational pension schemes contracted out of S2P received contracted-out rebates on earnings between the Lower Earnings Limit (LEL) and UAP. Employees paid NICs at the standard rate of NIC’s on earnings between the UAP and Upper Earnings Limit (UEL). Employers paid NICs at the not contracted out rate on earnings above the UAP.

The introduction of the new State Pension on 6 April 2016 meant no further entitlement to S2P could be built up, resulting in the ending of contracting out and the relevance of the UAP threshold.

From 6 April 2016 employees and employers no longer receive a contracted-out rebate by paying a lower rate of NICs and instead paying the standard rate of NICs.