The immediate impact, for employers currently sponsoring a contracted-out DB scheme, is an increase in payroll costs because the reduced rate of national insurance contributions (NICs) which applies to workers who are in contracted-out employment will be removed. The cost impact for employers in increased NICs, based on thresholds applying in the 2015/16 tax year, will be up to around GBP1,163 per worker. Members will also experience a reduction in take-home pay as the result of an increase in their own NICs.
Employers who prefer not to absorb this additional cost will be able to offset the increase in employer NICs from April 2016 either under the scheme amendment rule or by using a new statutory override power to reduce future accrual and/or increase member contribution rates. In either case, a consultation process with members will be required, which means that preparations need to start now if changes are to be effective from April 2016. Trustee involvement with any changes will vary depending on the mechanism used. Trustees will in any case have additional issues to consider in relation to reconciling their GMP liabilities with HMRC data.
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