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Contracting out – it’s out!

23 Jul 2015

1 minute read

On the 6 April 2016, the new State Pension will replace the existing basic and additional State Pension and will bring to an end contracting-out and the National Insurance rebate.

The full new State Pension rate will be no less than £151.25 and the actual amount is due to be set this autumn.

If you are one of the 2,500 private sector employers who offer a salary related pension scheme, employees are likely to be “contracted-out” of the additional State Pension. If so, National Insurance contributions are at a lower rate because of the National Insurance rebate.

From April 2016, employees will pay the standard rate of National Insurance contributions instead of the contracted-out rate. For employers, the standard rate of National Insurance is 13.8% of all earnings above the secondary threshold for all employees and they will no longer receive the 3.4% National Insurance rebate.

If you work in public sector organisations and professions such as the NHS and local councils, you are most likely to be contracted out. When the rules change on 6th April 2016, you will no longer be contracted out and so will pay more national insurance.

Employers who currently offer a salary related pension scheme and who will be affected by the changes are advised to speak to their pension advisor or scheme trustees to explore possible options available to them before the changes are brought in. Please call 01865 292200 if you would like to discuss your options.

The Department for Work and Pensions’ guidance on this topic can be found on the Government website.

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