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Consultation on ending State Pension ‘contracting out’

Friday, 7 July 2017

The Treasury has launched a consultation on ending the scheme which allows some employers and employees to pay a lower rate of National Insurance contribution because they are in occupational pension schemes.

‘Contracting out’ was introduced in the 1970s as an alternative to paying the higher rate of NI required to qualify for the State Second Pension, also known as the Additional State Pension.

Under proposals approved by Tynwald in July 2016, the State Second Pension is due to cease in April 2019 with the introduction of the New Manx State Pension, so there will no longer be any reason for ‘contracting out’.

Ending the scheme would mainly affect the Island’s public sector, and would mean employees having to pay higher rates of NI – bringing them into line with other workers – in return for increased state pension benefits. Their employers would also face higher NI contributions.

In the United Kingdom ‘contracting out’ came to an end in April 2016.

The Treasury consultation seeks views on how best to close the existing ‘contracting out’ scheme and how periods of membership of contracted-out occupational schemes should affect entitlement to the new Manx state pension.

Treasury Minister Alfred Cannan MHK said:

‘This consultation is an important part of the planned reforms to the Manx state pension that Treasury will be bringing to Tynwald later in the year. I would encourage all employers who operate these types of scheme to bring this consultation to the notice of all their scheme members.’

The consultation ‘Ending Contracting-Out of the State Second Pension’ runs from 7 July until 1 September and is available on the Government website at /ConsultationDetail.gov?id=627

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