The Department for Work and Pensions (DWP) is consulting over plans to allow employers to override the protected persons regulations (PPRs) as a way to offset the rise in costs to those affected by the removal of contracting-out.

Under government reforms to introduce a single-tier State pension, the State Second Pension will close, therefore contracting-out will no longer exist. This will result in the loss of national insurance (NI) rebates for employers who had employees in contracted-out Defined Benefit (DB) schemes, and their NI rates for each contracted-out member of staff will rise by 3.4 per cent.

Around 50,000 people are covered by the PPR, representing up to 3% of those in private sector DB pension schemes. Railways, London transport, coal and electricity workers will be most affected by the removal of contacting-out scheme, according to the DWP.

The consultation will consider whether it is fair to allow employers to override the PPR and offset the additional NI costs, as well as identify other industries that may be affected by the end of this scheme.

Confederation of British Industry (CBI) director of employment and skills Neil Carberry said: “It is good news that ministers have recognised that big increases in NI payments need to be fully off-set when the state second pension is scrapped.

“We’ve long argued that abolishing the current NI rebate on contracted-out pensions could cost businesses up to £1285 for each scheme member, running into tens of millions each year for some.

“The change will also rightly prevent the new state pension reducing take home pay for scheme members.

“Powers also must be given to employers running formerly nationalised industries and utilities to adapt to state pension reform.”

The consultation will end on 14 March 2013.

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