UK – The UK government has launched a consultation asking whether pension fund sponsors should be allowed to amend scheme rules to reflect higher employment costs resulting from the end of contracting out.
The changes, a result of the proposed reform of the first pillar that will abolish the state second pension (S2P), were put out to consultation late on Friday as the Department for Work & Pensions (DWP) published a draft of the single-tier pensions bill.
The CBI, an employer lobbying organisation, welcomed what it said was recognition that the increases in national insurance (NI) contributions should be offset.
The scrapping of S2P will mean defined benefit funds can no longer opt out of S2P, resulting in a 3.4% increase in NI contributions.
Neil Carberry, the organisation's director of employment and skills, said: "We've long argued that abolishing the current NI rebate on contracted-out pensions could cost businesses as much as £1,285 (€1,530) for each scheme member, running into tens of millions each year for some."
The consultation, set to run through mid-March, will also examine how to allow former state-owned monopoly businesses to amend their pension arrangements due to the existence of the protected pension regulations (PPRs) in sectors such as coal and electricity.
Carberry said: "The CBI has been calling for a time-limited, statutory 'override' to this, so their pension schemes remain afloat and they can treat all their employees equally, whenever they started their jobs."
A statutory override has been under consideration by the DWP for a number of years.
The department's deputy director for workplace pension reform first said the possibility was being considered in late 2011.
The DWP noted: "If the PPRs are not overridden, such employers would face the additional cost of paying full-rate NI contributions, without being able to make a corresponding change to reduce their pension scheme liabilities."
The department further estimates that, to offset the loss of the rebate, funds with a 1/60th accrual rate would likely see it changed to around 1/70th, or that alternatively contribution could be increased by 2.7% of pensionable pay.