Pensions - Articles - Fraser Smart comments on 2016 single tier state pension

 “The Chancellor’s stuck between a rock and a hard place. On the one hand, he has 85,000 irate women (and a few men) complaining that they were missing out on the new higher rate flat state pension. On the other hand, bringing forward the end of contracting out rebates by one year will undoubtedly accelerate further the closure of final salary schemes. Given the current economic climate and the close proximity of the end of the rebates, this is probably the easiest time ever for employers to close their schemes to future accrual.”

  

 As part of introducing the flat rate State Pension, final salary pension schemes will no longer be able to contract out of the State Second Pension. This was a flexibility that allowed employers to have a National Insurance rebate of 3.4% of “Upper Band Earnings” and employees to receive a rebate of 1.4% of “Upper Band Earnings”. These rebates reduce the costs of providing final salary benefits, which have escalated considerably in recent years.
 Upper Band Earnings are an individual’s earnings between the Lower Earnings Limit (currently £5,564 pa for 2012/13) and the Upper Accrual Point (currently £40,040 pa for 2012/13).