Abolition of Contracting-Out on a Defined Contribution Basis

Sunday, January 8th, 2012

We have published this information before; however, the start of 2012 is a good time to repeat this as a reminder.  Contracting-out of the State Second Pension (S2P) on a DC basis will be abolished from 06 April 2012.  Contracting-out of the State scheme on a Salary-Related basis (COSR) is not affected.  This has the following implications:

  • The following pension schemes will be affected:
    • COMP
    • Sections of COMB that Contract-out on a DC basis
    • APP and APP Stakeholder
  • All employees in such schemes will start to accrue benefits under S2P (unless they transfer to a scheme that Contracts-out on a Salary-Related basis
  • No National Insurance Rebates will be paid into such schemes from 06 April 2012
  • NI Letters F, G, H, K, V and S will become obsolete and must not feature in payroll systems or year-end documentation from 06 April 2012 (2012/13 tax year)
  • The SCON will become obsolete from 2012/13 and the P14 will not show this information
  • Equivalent Not Contracted-out NI Letters will replace the above, as follows, from 06 April 2012:
Existing Letter New Letter
F A
G B
S J
H R
K T
V Q

(For information, H, K, V, R, T and Q apply to Mariners only)

  • As a consequence of paying Standard NICs instead of the reduced Contracted-out NICs, employees and employers will see an increase in their Contributions

Comment

We will have a few less NI Category Letters to choose from for the next tax year.  That is good, from an administration point of view; however, do consider how you will change the NI Letters for existing employees who Contract-out on a DC basis.  As well as the administration, consider your payroll software and your pension provider / advisor.  Abolishing DC Contracting-out is not new, however, check how your software and provider want this handled and any plans that they have which may help the transfer of NI Letters.

Check out the links below which provide a great source of background information to the changes.  There is also a link to HMRC’s ‘Countdown Bulletins’, which are designed to keep everyone updated on the abolition.

Further Information

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