Pensions - Articles - BW comments on ONS publication regarding contracting out

 “Smaller schemes could face a big hit as a result of the end of contracting out. In 2013, 8 out of 10 active members of defined benefit (DB) schemes – and their employers – benefited from the National Insurance (NI) rebate resulting from contracting out.

  

 “Schemes that opt to absorb the NI hike rather than passing the increased cost on to members could see their cost of ongoing accrual rise. The average contribution rate for employers sponsoring contracted-out DB schemes could increase from 22% to around 24% as a result of this alone. By comparison, the average contribution rate for employers sponsoring non-contracted-out schemes was just 15%, reflecting the higher level of benefits generally provided for in contracted-out schemes.

  

 “With April 2016 on the horizon, new regulations permit employers to mitigate the cost of the NI increase through changes to benefits or member contributions. Many DB pension members will see their own NI costs increase as part of the move to a single-tier state pension and employers may have been reluctant to pass any further costs on to members. Nonetheless, the ONS data clearly shows that members of contracted-out schemes already benefit from a higher level of employer contribution. Employers should consider whether they wish to take any action rather than sleepwalking into even higher pension costs.”