Employers: Were you one of the 2,500 private sector employers who offered a salary-related pension scheme?
Updated 19 July 2016
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Employers: were you one of the 2,500 private sector employers who offered a salary-related pension scheme? Important National Insurance changes from 6 April 2016.
1. What has happened?
The State Pension has changed for people who reach State Pension age from 6 April 2016. This change will help people clearly understand what they will get from their State Pension so they can plan for retirement.
If you sponsor a salary related workplace pension, your employees are likely to have been ‘contracted-out’ of the additional State Pension. If so, you and your employee will have been paying National Insurance contributions at a lower rate because of the National Insurance rebate. Three-quarters of people reaching State Pension age in the 1st 2 decades of the new State Pension will have been contracted-out at some point.
The new State Pension has replaced the old basic and additional State Pension for people who reach State Pension age from 6 April 2016. Contracting-out and the National Insurance rebate ended on that date.
2. What this means
From 6 April 2016, you and your employees pay the standard rate of National Insurance contributions instead of the previous contracted-out rate. For employers, the standard rate of National Insurance is 13.8% of all earnings above the secondary threshold for all employees, you no longer get the 3.4% National Insurance rebate (on a proportion of earnings).
The 1.4% National Insurance rebate for those employees in contracted-out schemes has also ended. This means employees now pay the standard rate of National Insurance instead of a lower rate. Most people who were contracted-out will be able to receive a higher new State Pension than under the old system of basic and additional State Pension.
2.1 What should I be doing now?
If you have not already done so:
Speak to your pensions adviser or scheme trustees to find out how your scheme is affected and to explore your options.
Employers can take action to offset the National Insurance increase but it can take up to 12 months to implement depending upon the size of your scheme.
Find out more about contracting-out and State Pension changes.