Abolition of contracting-out: consequential amendments
04 March 2016
The Department for Work and Pensions (DWP) has been developing legislation to support the ending of contracting out from 6 April 2016. The DWP has published their response to the consultation on draft legislation which addresses concerns raised about certain administrative functions. There was broad agreement by most respondents that the provisions in the Order:
- are necessary as a consequence of contracting out ending
- protect members’ rights
- will ensure schemes are able, post abolition, to carry out their administrative functions
The required secondary legislation has also been laid before parliament:
This legislation serves a number of purposes:
- It will enable employer sponsors of schemes which were previously contracted-out to continue to run and administer these schemes without disruption. All rights accrued by employees through contracted-out defined benefit (DB) schemes before the abolition of contracting-out are fully protected.
- It will enable trustees of schemes to make certain changes to their scheme rules to take advantage of changes in the Pensions Act 2014 concerning the revaluation of GMPs for early leavers following the abolition of contracting out.
- This Order 2016 clarifies the position in relation to contributions equivalent premiums at the point when contracting-out is abolished on 6 April 2016. It is intended to prevent a contributions equivalent premium payment being made when contracting-out ends and the member remains in the scheme.
- Administrators and scheme professionals will have clarity in relation to paying (or not paying) a contributions equivalent premium payment when contracting-out ends and the member remains in the scheme.
The CIPP Policy Team has produced a short webcast which looks at what employers need to consider for the abolition of contracting-out of a defined benefit pension scheme on 6 April 2016.