National Insurance changes from April 2016

Wednesday, 03 February 2016

April 2016 sees the first major change to the State Pension for many years with the introduction of the single tier flat rate pension.  You can find out more about the changes to the State Pension on the Gov.UK website.

One of the consequences of the introduction of the new State Pension is that pension schemes which have chosen not to participate in the second tier of the State Pension (known as contracting out) no longer have this option.  This includes USS, UREPF and TPS, but does not affect members in URPS.

Many UK pension schemes have previously “contracted out” of the second tier of the State Pension and as a consequence of the move to a single tier, this option is no longer available.  One of the advantages of a pension scheme being contracted out has been the fact that the members of such a scheme (and their employer) have enjoyed paying a lower rate of National Insurance contributions (NI) than they would otherwise have paid.  So this advantage will disappear from the beginning of the new tax year (6 April 2016,) and anyone who has been paying lower NI whilst a pension scheme member will see their NI contributions increase from their April salary payment onwards.

The rebate on employees’ NI contributions has been 1.4% of pay eligible for NI deductions and 3.4% for the employer.

The change to National Insurance is a statutory change and so the University of Reading has no option other than to make the change to employees’ NI contributions.

Who will this affect?

This change will affect many of our employees.  As the Universities Superannuation Scheme (USS), the University of Reading Employees’ Pension Fund (UREPF) and the Teachers’ pension Scheme (TPS) all currently have this contracted out status, any members of these schemes will pay higher NI from April 2016.

Members of the University of Reading Pension Scheme (URPS) are not affected, as the scheme was not eligible to be contracted out and so there is no change.

If you are not a member of any pension scheme at the University of Reading, you will also not be affected by the changes.

How do I know which scheme I am in?

If you are employed on a contract in Grades 1-5 (or equivalent) and joined a pension scheme on or after 1 August 2011, you will be a member of URPS and thus not affected by this change in NI.  For employees in those grades who joined a scheme before 1 August 2011, you will be in UREPF and will be affected by the changes.

Staff in Grade 6 and above (or equivalent) who are scheme members will be in USS and will be impacted by the changes.  It is worth noting that under the changes being made to the benefit structure of USS, your member contributions are also due to increase from 1 April 2016 and so, unfortunately, this increase will take place as the same time as the increase in NI.

Further information

Further information can be found in the Employee FAQs here.