Pension Reforms

Dear colleague

We are writing to share some important information with you about Government changes to your National Insurance contribution, which will come into effect in April this year.

The Basic and Additional State Pensions, which are funded by National Insurance, are being reformed into a new single-tier State Pension.

The options of contributing into the Additional State Pensions, known as SERPS (state earnings related pension scheme) or S2P, (state second pension), and the option to ‘Contract-Out’ come to an end.

If you are a member of the University of Worcester Schemes such as USS, TPS or LGPS, you are ‘Contracted-Out’ of the Additional State Pension, so the University Scheme takes the place of the Additional State Pension.

Under the existing arrangements for contracting-out, National Insurance contributions have been collected from your pay at a rate of 10.6%, which has been subject to a rebate of 1.4%. This is lower than the Standard Rate, which is 12%.

From April, this rebate comes to an end. The implications are that your National Insurance contributions will rise by 1.4% to the Standard Rate of 12%. The tradeoff for this is that the level of the new basic pension will be higher.

The table below gives some examples of how the change in contributions may affect your take home pay.

Member’s gross earnings NI payable currently NI payable from 6 April 2016 Difference
£15,000 per year

(£1,250 per month)

£58.66 per month £69.36 per month £10.70 per month
£27,000 per year

(£2,250 per month)

£164.66 per month £189.36 per month £24.70 per month
£45,000 per year

(£3,750 per month)

£307.65 per month £347.56 per month £39.91 per month

* The examples assume the individual is over 21 years, are based on the current NI thresholds (2015/16) and have been calculated using the HMRC NI contributions calculator http://nicecalculator.hmrc.gov.uk/Class1NICs1.aspx

You can find more information about these changes in the attached document and at: www.gov.uk/new-state-pension/overview

More information is also available on the HR pages of our website at: http://www.worc.ac.uk/personnel/682.htm

You may find that the increase in National Insurance that you pay may be modestly offset by the higher Personal Tax Allowance, which also comes into effect in April.

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