National Insurance payments go up for pension scheme members

The government is making changes to the state retirement pension from April 2016 with the aim to introduce a simpler, fairer system where people have a clearer idea about what pension the state will provide, making it easier to plan their retirement savings.

The new State Pension will be introduced from 6 April 2016 and will be £155.65 per week. Your National Insurance record will be used to calculate your new State Pension. You will usually need 10 qualifying years to get the new State Pension. The amount you get may be lower depending on your National Insurance record.

Individuals will be able to claim the new State Pension if they are:

  • a man born on or after 6 April 1951 OR a woman born on or after 6 April 1953 and
  • have at least 10 years’ ‘qualifying years’ on their NI record. (35 years NI contributions are required to receive the full flat rate State Pension.)

Membership of Employer pension schemes

There are currently two elements to the state pension: the Basic State Pension and the Additional State Pension (sometimes called State Second Pension or SERPS). If you are a member of a Defined Benefits scheme, such as USS or the University of Exeter Retirement Benefits Scheme (ERBS) or the NHS Pension Scheme then you are currently not part of the Additional State Pension and pay a reduced amount of National Insurance: this is called “contracting out”. From April 2016, as consequence of the new State Pension, “contracting out” will cease and you will begin to pay the same rate of national insurance as the rest of the working population who are not in a Defined Benefits Scheme. In return, you will get a larger state pension at retirement from the government.

Effect on pay

From April 2016, your National Insurance contributions will increase by approximately 1.4%. The table below gives examples on how this may affect your pay*. You do not need to do anything about your National Insurance as this change will be automatically processed in your pay from April 2016 onwards.

Member's gross earnings

NI payable currently

NI payable from 6 April 2016

Difference

(per month)

£15,000 per year (£1,250 per month) £58.66 £69.36 £10.70
£27,000 per year (£2,250 per month) £164.66 £189.36 £24.70
£45,000 per year (£3,750 per month) £307.65 £347.56 £39.91
£57,047 per year (£4,753 per month) £320.12 £365.13 £45.01
£76,633 per year (£6,386 per month) £350.15 £395.16 £45.01

* 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. Employees who are members of a contracted-out defined benefit pension scheme receive the NI rebate and are usually NI category D. Employees who are not members of a contracted-out defined benefit pension scheme pay standard rate NI are usually category A. By switching the calculation between these two categories anyone can estimate what the impact will be on their take home pay using the HMRC online calculator.  

The University will also pay increased Employer National Insurance for you. The increase to the employer will be on average 2% for each member of the pension scheme. This annual cost to the University in the 2016/17 tax year will be approximately £1.26 million.

These changes affect all employers in the UK who operate pension schemes similar to USS and ERBS. For more details go to visit the GOV.UK website where you will also give find more information about the new State Pension.