Contracted Out Employment

How often do I have to publish pensions statements to my members?

At least once a year, usually with the annual statement or report.

What are the benefits of Contracting-out of the State Earnings Related Pension scheme (SERPS)/State Second Pension (SP2) scheme?

Members of Contracted-out occupational pension schemes, for example Contracted-out Salary Related (COSR), Contracted-out Money Purchase (COMP) or Contracted-out Mixed Benefit (COMB) schemes, pay a lower rate of NICs. The employer also pays a lower rate of NICs. If you are Contracted-out through an Appropriate Personal pension (APP) scheme, you will continue to pay full rate NICs, but the DWP will pay to the provider on your behalf, the difference between the Contracted-out and non Contracted-out rates. You can obtain advice on what option is best for you by contacting an independent financial adviser.

I pay full rate NI contributions, even though I am in a Contracted-out scheme. Is this correct?

As long as you are a member of an APP scheme and do not enter a Contracted-out occupational pension scheme during this time, you will continue to pay full rate NI contributions. The NISPI will pay the provider of your pension, on your behalf, the difference between this higher rate and the lower Contracted-out rate.

Why do you need so much information on the P14 End of Year return, such as an ECON on the P35 facing sheet and the SCON on the P14?

The records that we keep have to be detailed so that the correct payments are made at the right time. Our computer system holds in excess of 65 million individual NI records. The more information we hold about each employee, the less room there is for errors. The process of payments depends on records, which go back several years being correct. The computer system identifies schemes and their members by the Employers Contracting-out Number (ECON). This must be quoted on the P35 when P14’s are submitted so that we can identify all employees who are members of an employer’s Contracted-out company pension scheme. We need the SCON or Scheme Contracted-out Number for employees who are members of COMP schemes or COMP Stakeholder Pension Schemes. This enables payment, where appropriate, of any Age Related Rebates (ARRs) for members of pension schemes.

How do I go about Contracting-out of the State Second Pension?

There are various ways that you can Contract-out of the State Second Pension. You may be able to join an employer’s occupational scheme if they have one. Alternatively you can Contract-out through APP scheme or an APPSHP scheme. The APP/APPSHP schemes are usually administered by insurance companies, banks, building societies or friendly societies. You should contact them direct for advice or speak to an independent Financial Adviser.

Am I Contracted-out?

If you are in any doubt about whether you are a member of a Contracted-out Pension Scheme, contact you r employer or the Scheme Administrator direct. If you are still unsure, contact the Contracted-out Helpline on:

084591 50150

At what stage should I apply to re-join the State Second Pension?

You need to seek advice from your employer, scheme administrator or an Independent Financial Adviser. You may re-join the State Second Pension at any time. If you have an APP, you should ask for form CA1543 from your pension provider.

Do I have to Contract –out of the State Second Pension if my employer runs an occupational pension scheme?

You do not have to Contract-out unless you want to do so.

How can I get copies of the Contracted-out NI contributions tables?

The tables are included in the employers pack on the employers CD ROM which is issued once a year. They are also published on this Internet site. If you need more copies, please telephone the Employers Orderline on 084576 46646

Am I allowed to re-join the State Second Pension at any time?

Yes. You may re-join the State Second Pension at any time, although it may not always be the best option for you. If you have an APP, you should request form CA1543 from your insurance company. You can seek advice from your employer, the scheme administrator or an independent financial adviser.

Do I have to contract-out of the State Second Pension if my employer runs a COSR, COMP or COMB scheme?

You do not have to contract-out unless you want to.

What is Category F NIC rate?

This category was introduced from April 1997 and applies to members of COMP schemes or the COMP element of COMB schemes. Prior to this date, members of these schemes paid Category D NICs.

Where will I find details of the ECON and SCON?

When the employer started his Contracted-out pension scheme he will have received his copy of the Contracted-out certificate from HMRC. The ECON and SCON are shown at the top of the certificate.

What is Pension Sharing on Divorce and when did it start?

Pension sharing on divorce will allow divorcing couples the option to share their pension assets as a part of the overall divorce settlement. The implementation date was 1 December 2000.

Safeguarded rights are rights of a scheme member derived from membership of a Contracted-out occupational or APP scheme which are transferred to the former spouse as a result of a pension sharing order or agreement.

Scheme rules can specify whether all of the accrued rights are that are subject to a pension share become safeguarded rights, therefore safeguarded rights may include some non Contracted-out rights. For further information please see Pension Sharing on Divorce.

I have heard about Age Related Rebates. What are they?

HMRC National Insurance Contributions Office pay Age-related rebates (ARRs) for members of COMP, COMPSHP, APP and APPSHP schemes. The amount of ARR depends upon a person’s earnings and their age. The ARR’s reflect the different amounts of rebate needed at different ages to provide benefits broadly equivalent to those you would have received from the State Second Pension.

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