Workplace Pensions

Wednesday 12th February 2014 Written Statements

[The Minister of State, Department for Work and Pensions (Steve Webb)]

Integral to the single-tier reforms is the closure of the state second pension. Contracting out of the state second pension for defined benefit schemes—giving up entitlement in return for a broadly similar occupational pension and payment of lower national insurance (NI) rate for employer and employee—will therefore come to an end. All employees will pay the same rate of national insurance and become entitled to state pension in the same way. The state pension system will be significantly simpler as a result.

The Government’s objectives for managing the end of contracting out are to minimise the impacts on employers, schemes and individuals, ensuring that the administrative processes of ending contracting out are as smooth and as simple as possible; to ensure amounts built up in schemes to 2016 continue to be paid; and to ensure that the sustainability of defined benefit pension schemes is not undermined. The Government are allowing private sector employers who face paying an increased rate of national insurance to make limited changes to their pension scheme rules to recoup some or all of the additional costs they face subject to the will of Parliament.

There is a small group of individuals (approximately 60,000) employed in some formerly nationalised industries (rail including Transport for London, electricity, coal, nuclear waste and decommissioning), where the employers and trustees are limited in their ability to change scheme rules by legislation made during privatisation.

On 18 January 2013, the Government published a public consultation “Abolition of contracting out—consultation on a statutory override for Protected Persons Regulations”. The consultation invited views from stakeholders as to whether or not these employers should be permitted to use the statutory override to change their pension scheme rules for employees covered by the protected persons legislation. The consultation ran until 14 March 2013 and attracted 145 responses.

We had to consider the best and fairest course of action in an area where the arguments are both finely balanced and highly polarised. The Government have decided that it should honour the promises that were made at the time of privatisation and which, in many cases, have been affirmed by Government Ministers subsequently. The Government think it is reasonable that issues arising from the end of contracting out for this small number of workers should be resolved through negotiation. Therefore the Government propose that employers should not be allowed to use the statutory override to alter their pension schemes in relation to members with protected person status.

We intend to table an amendment to the Pensions Bill for debate at Lords Report stage to ensure the statutory override cannot be applied in respect of scheme members with protected person status.

The full response and the related impact assessment will be published later today and these will be available on: https://www.gov.uk/government/consultations/possible -statutory-override-for-protected-persons-regulations.

I will place a copy of the Government response and the impact assessment in the Library of the House of Commons.