The new state pension from 6 April 2016

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From 6 April 2016 there will be a new state pension, for those that reach state pension age on or after 6 April 2016.

We look at what you need to know and what you can do to prepare your organisation and support your employees.

The implications of the new state pension

The current state pension is made up of two parts:

  • the basic state pension
  • the additional state pension (also known as state second pension or SERPS).
Currently, members of some workplace pension schemes (such as the NHS Pension Scheme) are contracted out of the additional state pension. This means members do not receive the additional state pension and pay a lower rate of National Insurance (NI). As an employer, you also pay lower NI contributions for those members.

From 6 April 2016, for those that reach state pension age on or after the 6 April 2016, the new state pension will replace the existing basic and additional state pension. The introduction of the new state pension means the end of contracting out and the end of current reductions to NI contributions for employers and employees.

How does this affect my organisation?

From April 2016, employers will pay additional NI contribution costs of 3.4 per cent on an employee’s earnings (for members of a contracted out pension scheme) between the lower earnings limit of £5,824 per year and the upper accrual point of £40,040 per year. You can find out more about NI rates and thresholds for 2015 to 2016 on the Gov.UK website.

This will have significant financial implications for your organisation. We understand that potential funding discussions are being undertaken as part of the comprehensive spending review. We will keep you updated with any further information on the outcomes of these discussions as we receive it. 

How does this affect my employees?

From April 2016, the majority of your employees, who are members of a contracted out pension scheme, will no longer receive their 1.4 per cent NI contribution rebate. This will have a financial impact for your employees as it will reduce their take home pay. 

It is important that you are able to inform employees about this change and why it is happening. To help you do this we have produced an employee factsheet which you can share with your employees. 

Further Information

You can find out more information about the new state pension on the Gov.UK website.

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