The end of contracting out poses major challenges for employers for which they are ill-prepared, technical pensions specialists Aries Pension & Insurance Services warned today. The Pensions Bill published before the weekend confirmed the government’s intention to bring forward the introduction of the single tier state pension to 2016.

Aries director Ian Neale said: “This will have an impact on employers with defined benefit schemes that have remained contracted out, as they will no longer receive the benefit of National Insurance rebates; instead, they will be required to start paying standard National Insurance contributions (NICs) in relation to each member.”

The change has implications for both private and public sectors, he added.

“In the private sector, members will be worse off because employers will be given the power of statutory override to allow them to pass on the cost to scheme members via either higher contributions or a lower accrual rate. There will be a double impact on members as they will already be paying higher NICs independently.”

Public sector employees, however, are protected, with state employers barred from passing on the costs to staff. That left three options, according to Neale: increased funding from the Treasury to cover the costs; further cuts elsewhere to absorb them; or, most likely, “that the government will renege on its commitment to leave public sector pensions alone for 25 years and open up a new front with the unions.

“Let’s watch this space.”

Share Story: