Legislation is now in place enabling employers to amend their schemes to take account of increases in national insurance contributions (NICs) which will take effect when contracting out is abolished in April 2016. The power to amend can be exercised by the employer before 6 April 2016 but cannot be effective until that date, and can be used more than once.
The statutory power may be used to:
- increase employee contributions; and/or
- alter future benefit accrual.
It may not be used to:
- increase the total amount of employee contributions by more than the increase in employer's NICs;
- reduce the amount of the scheme's liabilities in respect of benefit accrual by more than the increase in the employer's NICs; or
- give the result that the sum of employee contribution increases and benefit accrual reductions is more than the increase in the employer's NICs.
In other words, amendments made under the regulations cannot be used to create a windfall for the employer. They can only be used to set off the additional NIC liability the employer will have as a result of the abolition of contracting out (3.4 per cent of relevant earnings).
Where a scheme provides for matching contributions, the power can be used to increase only the employee contribution (so the employer contribution remains at the current level). Where the effect of a reduction in future accrual would be also to reduce employee contributions (i.e. where accrual is linked to the level of employee contribution) the power can be used to ensure that employee contributions are not reduced.
Any amendments made under the statutory power must be certified by an actuary, appointed by the employer, as being compliant with the requirements set out above.
Points to note
- Trustees have a very limited formal role in any amendments made under the statutory power. They must be provided with information on the proposed changes and be consulted on the effective date. However, as they will be required to implement the changes, it would be good practice for employers to discuss their proposals with the trustees in advance.
- It is not entirely clear from the legislation whether trustees can rely on the actuary's certificate when implementing the changes. The DWP has stated that any amendments which fail to comply with the provisions of the legislation are void but the legislation itself is silent on this.
- There are no express provisions for notifying members of the changes – but the employer will be required to consult with affected members (as either type of amendment will be a listed change).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.