Membership of the Local Government, Fire Fighters’ or Police pension schemes meant members were automatically contracted-out of the State Earnings Related Pension Scheme (SERPS) when this was introduced on 6 April 1978 and from the State Second Pension (S2P) when this followed on from SERPS.
Contracting-out for salary related pension schemes will cease after 5 April 2016 as a result of the Pensions Act 2014 and the introduction of the new State Pension. The Department for Work and Pensions has kindly provided a resource pack regarding the introduction of the new State Pension. The pack should answer any questions your staff members may have about the changes:
It is understood that, in the same way that a member of the Local Government, Fire Fighters’ and Police pension schemes who was contracted-out of SERPS/S2P would not build up the SERPS/S2P ‘Additional Pension’ element of their old state pension whilst contracted-out, there will be an adjustment made to their new State Pension in respect of such contracted-out periods.
From 6 April 2016 when active members of the Local Government, Fire Fighters’ and Police pension schemes will no longer be contracted-out, both your and your member’s National Insurance contributions will increase as the contracted-out rebates will no longer apply. Whilst the Pensions Act 2014 allows pension schemes to increase employee pension contributions or to reduce future benefit accrual, to cover the additional cost of the abolition of contracting-out, these are not options that are open to any of the Public Service Pension Schemes such as the Local Government, Fire Fighters’ and Police pension schemes.
LGSS Pensions will inform members about the end of contracting out, commencing with an article in the newsletter to accompany the 2015 Annual Benefit Statements, however you may wish to do your own internal communication.
The following links give more details on the changes to the State Pension and the end of contracting out, how this will affect you and action you need to take:
- Q & A for LGPS Member
- LGA Q & A document for employers on the ceasing of National Insurance rebate
- National Insurance rates and categories
- Overview of the new State Pension
- State Pension calculator
- Public Sector letter 7 – Increase in National Insurance
- Public Sector factsheet 8 – Changes to the State Pension from April 2016 for Public Service Employees
- State Pension toolkit