The Department for Work and Pensions (DWP) and HM Revenue & Customs (HMRC’s) have published guidance for employers and trustees of open defined benefit (DB) schemes facing the end of contracting-out from 6 April 2016.
The guidance consists of various “fact sheets” aimed at the following audiences:
- Sponsoring employers - this highlights which employers are affected and how. For example, employers and employees will pay the standard rate (class 1) national insurance contributions (NICs) instead of the lower, contracted-out rate from April 2016. There is a recommendation that employers should seek advice without delay on the possibility of amending their scheme rules to offset the future increase in the rate of the employer’s NICs";
- Employees – the impact on individuals is set out and there is a basic explanation of the statutory override which will permit employers to amend scheme rules (without trustee consent) to reduce scheme costs in order to offset the increase in NICs when contracting-out ends; and
- Trustees – in addition to explaining the statutory override, the broader impact on members' benefits is set out. The leaflet also confirms that HMRC will no longer track which schemes hold GMPs and other contracted-out rights for individual members. It states that with effect from December 2018, HMRC will provide members with details of their contracted-out scheme memberships. It recommends that schemes make use of HMRC's reconciliation service
The DWP has previously consulted on detailed draft regulations in relation to the abolition of DB contracting-out. The consultation ended on 2 July 2014 and the DWP’s response and final regulations are still awaited.
View the guidance leaflets.