Contracting-out of additional state pension ends


Feb 04, 2016


Pensions Personal Finance

From 6th April 2016 all employees with contracted-out defined benefit (DB) pension schemes will automatically be brought back into the State Pension scheme. This means that if you have a Contracted-Out Salary-Related (COSR) occupational pension scheme, you’ll no longer be able to use it to contract out of the State Scheme. Instead, depending on your level of earnings, you will start to accrue entitlement to the new State Pension.

Also, if you’re currently eligible for the contracted-out National Insurance Contributions (NICs) rebate, (either 3.4% as an employer or 1.4% as an employee), then this benefit will be ending on 6th April too.

This will mean some changes in how and what you report to HMRC:

• If you’re an employer you won’t be able to use your Contracted-Out Salary-Related (COSR) occupational pension scheme to contract employees out of the new State Pension scheme.

• As an employer you’ll no longer need to report the Employers Contracting-Out Number (ECON) and Scheme Contracted-Out Number (SCON) details on Full Payment Submission (FPS), for tax years commencing 6th April 2016 and onwards.

• It will no longer be necessary to separate the National Insurance (NI) earnings between the Primary Threshold (PT) and the Upper Accrual Point (UAP), and between the UAP and the Upper Earnings Limit (UEL).

• There will, however, be a requirement to report NI earnings between the PT and the UEL, as there was prior to 2009.

• There will be one column fewer to complete on forms P11 and P60. These forms will be updated in due course and will be available on HMRC’s Basic PAYE Tools software, or can be ordered from the Employer order-line. All HMRC systems will be amended to reflect these changes, and the UAP data field will be removed from the FPS and Earlier Year Update (EYU).

From 6th April 2016 contracted-out National Insurance tables/categories D, E, I, K, L, N, O and V will be replaced by Standard National Insurance tables/categories A, B, J, M, P, Q, R, T, Y and Z. All payroll software is going to need to be amended accordingly. If this all seems a bit complicated and you’re struggling with any of the changes, please do get in touch!