Management Information Sheet

On 6 April 2016 the current basic state pension and state second pension (S2P) will be abolished and replaced by a single-tier state pension. The abolition of S2P will also mean the end of contracting-out. The measures to implement the single-tier state pension and abolition of contracting-out are contained in the Pensions Act 2014.

Currently contracted-out schemes must provide a certain level of Defined Benefit (DB) benefits, sufficient to satisfy the statutory reference scheme test, and in return both employer and employees pay lower National Insurance Contributions (NICs). The abolition of contracting-out will therefore have cost implications for both employers and employees because of the loss of the NIC rebates. As a result, employers' Class 1 NICs will increase by 3.4% (of relevant earnings) and employees' Class 1 NICs will increase by 1.4% (of relevant earnings).

Norfolk County Council is one of many local authorities that are part of the contracted-out scheme and will be subject to implementing this change. From April 2016, your school and its employees will pay the standard rate (class 1) of NIC’s instead of the contracted out rate. The current employer standard rate is 13.8% (Contracted-out rate is 10.4%) of all earnings above the secondary threshold for all employees, schools will no longer get the 3.4% National Insurance rebate per employee.

This will lead to increased costs for schools, Academies and for their employees. We will be implementing an update to the budget planner software that will amend average on-cost rates from 2016-17 and amend the functionality that enables schools to calculate staff actual on-cost rates based on the latest information we have been provided. Please look out for this update to the software in the coming weeks.

This will put additional pressures on school budgets but as the Department for Work & Pensions will be abolishing the contracted-out scheme, we felt it necessary to make this update to the budget planner software so careful budget planning can take place.

There will be no additional funding to compensate schools for the increase in costs.

A fact sheet produced by the Department for Work and Pensions has been attached to this Management Information Sheet.

For all HR related queries, please contact Nancy Ruthven nancy.ruthven@norfolk.gov.uk & for budget related queries Martin Oswick martin.oswick@norfolk.gov.uk.