Pension Schemes: Off-Setting The Cost Of State Pension Changes

Summary and implications

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 the National Insurance (NI) liability for employers currently offering employees a contracted-out scheme.

Regulations enable employers to reduce benefit accrual and/or increase member contributions in order to offset the additional NI costs.

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...