DWP consultation on abolition of contracting out

13 May 2014

The Department for Work and Pensions has opened a consultation on proposed changes caused by the abolition of contracting out of the additional state pension by defined benefit schemes.

This consultation asks for views on proposed legislative changes which follow from the abolition of defined benefit contracting-out. Subject to Royal Assent to the Pensions Bill 2013-14, defined benefit contracting-out of the additional State Pension will end when the current two-tiered system of basic and additional State Pension is replaced by a single-tier pension in April 2016.

Draft Regulations are attached as Annexes:

  • Annex A contains the draft Occupational Pension Schemes (Power to amend Schemes to Reflect Abolition of Contracting-out) Regulations 2014 – referred to in this consultation as the “statutory override regulations”. Clause 24 and Schedule 14 of the Pensions Bill 2013-14 will enable employers to amend scheme rules without trustee approval in order to reduce scheme costs to reflect the increase in employer National Insurance costs when contracting-out ends. The regulations in Annex A set out the detail of how employers will be able to use this power.
  • Annex B contains the Occupational Pension Schemes (Schemes that were Contracted-out) Regulations 2014. The draft regulations contain provisions which will replace the Occupational Pension Schemes (Contracting-out) Regulations 1996. In preparing these draft regulations we have sought to reflect changes made by the Marriage (Same Sex Couples) Act 2013 and resulting regulations. However, as implementation of that Act is on going, we anticipate that further changes may need to be reflected in the final contracting-out regulations.

The DWP are aware that other legislation will need amending to take account of the abolition of contracting-out and will be working with stakeholders to develop the provisions in a consequential order for publication later in the year. The majority of the provisions will come into force in April 2016. The statutory override regulations, however, are expected to come into force in autumn 2014.

The DWP particularly welcome comments on the draft regulations from pension scheme trustees, their advisers, employers who sponsor contracted-out occupational pension schemes, pension scheme professionals, pension scheme members and member representative organisations, but we would be interested in views from any source.

CIPP comment

The CIPP policy team will be looking at this consultation in detail and will publish a survey to gather member opinion if deemed necessary and/or relevant.