Important changes to your National Insurance contributions and State Pension from April 2016
Important information for employees
The current State Pension is made up of two parts: the basic State Pension and the additional State Pension (the additional State Pension is sometimes called State Second Pension or SERPS).
If you are in a defined benefit pension scheme (normally a salary-related pension scheme), you are likely to be “contracted-out” of the additional State Pension. This means that you and your employer pay National Insurance at a lower rate because you get a National Insurance rebate. You may have little or no additional State Pension as you are building up a workplace pension instead. Your basic State Pension is not affected.
What is happening?
The State Pension is changing for people who reach State Pension age on or after 6 April 2016. These changes will help people clearly understand what they will get from their State Pension so they can plan for retirement.
The new State Pension will replace the existing basic and additional State Pension and end contracting- out and the National Insurance rebate.
What does it mean for me?
Your new State Pension may reflect the lower levels of National Insurance paid by you and your employer for any periods when you have been contracted-out. However, you will have additional income from the workplace pension you have been paying into, and may be able to boost your State Pension by continuing to work or claiming National Insurance credits after 6 April 2016.
For the vast majority of employees who are affected, this will mean you will be able to get more State Pension under the new scheme as a result of the changes compared to under the current scheme.
From April 2016, you will also start paying the standard rate of National Insurance contributions and you will no longer get the 1.4% National Insurance rebate.
Employers may make changes to their workplace pension scheme to help offset the end of the National Insurance rebate for employers with consent of trustees and in line with scheme rules. The Pensions Act 2014 also allows employers to make limited changes without consent. Your employer must consult with you before making any such changes.
Find out more information at: www.gov.uk/government/uploads/system/uploads/ attachment_data/file/375691/employees-fact-sheet.pdf