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NIC costs set to increase as second state pension comes to an end

21 March 2013

Today’s Budget confirmed the Government’s plans to end the second state pension.  This was payable in addition to the basic state pension, at a rate which increased with an individual’s national insurance contributions (NIC) paid over their working life.  It will be replaced by a single, increased basic state pension fixed at £144 per week in its first year from April 2016, subject to having paid sufficient NICs.

Mark Groom, tax partner at Deloitte, said: “Pension schemes and individual employees have long been able to contract out of the second state pension and make separate arrangements, in exchange for reduced rates of NIC.

“However, contracting out of money purchase schemes was abolished in April 2012, and with it the 1.4% employer’s NIC rebate.  Contracted out salary related (defined benefit) pension schemes continue attract a 3.4% NIC rebate for employers and 1.4% for employees for the time being.  Employers and employees in such schemes will clearly lose those rebates when contracting out is finally abolished.

“This measure is expected to raise £0.6bn in employer NIC, and £0.2bn from employee NIC in the private sector.  A total of £1.4bn is expected to be raised from public sector employees.”

The Government estimates that 90% of employees will be better off, or at least no worse off, through the increased new single pension scheme.  As some small compensation, at least NIC will become easier to understand for employees and to account for by employers affected.

Ends

Notes to editors
About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities.

Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

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