Trustees of contracted-out schemes: Impact of the end of contracting-out from 6 April 2016
Updated 19 July 2016
漏 Crown copyright 2016
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Important information for trustees
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 to help them plan for retirement.
If an employee is a member of a salary-related workplace pension, they are likely to have been 鈥榗ontracted-out鈥� of the additional State Pension. People who are contracted-out, and their employers, will have paid National Insurance contributions at a lower rate (known as the 鈥楴ational Insurance rebate鈥�). 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 basic and additional State Pension for people who reach State Pension age from 6 April 2016. Contracting-out and the contracted-out National Insurance rebate ended on that date.
2. What this means
As a result, using powers in the Pensions Act 2014 private sector employers sponsoring these schemes may make limited, unilateral changes to members鈥� future benefits and contributions to help offset the increase in their National Insurance contributions.
His Majesty鈥檚 Revenue and Customs (HMRC) will stop tracking which schemes hold individuals鈥� contracted-out benefits but will, until December 2018, work with Trustees to reconcile scheme memberships.
Commencing December 2018, HMRC will provide members with details of their contracted-out scheme memberships. Trustees have until December 2018 to reconcile scheme membership and ensure that contracted-out data, for example the amount of the Guaranteed Minimum Pension, matches HMRC data.
3. Further information
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