The Department for Work and Pensions (DWP) is consulting over scrapping ‘protected persons’ rights for employees hit by the abolition of contracting out under its state pension reform.
Under the government’s plans for the introduction of a £144-a-week flat rate state pension from 2017, contracting out for defined benefit schemes will end. Contracting out for defined contribution schemes was scrapped in April last year.
Employees and employers with contracted-out pensions will be hit by the loss of national insurance rebates, with employers facing a 3.4% rise in national insurance contributions (NICs), and employees the equivalent of a 1.4% rise in income tax.
Employers running contracted-out schemes are likely to introduce cost-cutting measures as a result of the hike in NICs, either by reducing benefits or forcing employees to contribute more.
However, some companies will be prohibited from doing this due to the ‘protected persons regulations’. These rules affect companies which took over the running of previously state-run industries. They require employers to provide pension benefits to workers employed at the time of privatisation that are no worse than those they received in the public sector.
The DWP is consulting on whether these companies should be able to override those rules as a result of the impact of state pension reform. Around 50,000 employees in the rail, electricity and coal industries would be affected.