As covered in our article this August (click here) contracting-out is being abolished for defined benefit (DB) schemes on 6 April 2016 when the new single-tier state pension is introduced.  The DWP consulted earlier in the year on two sets of draft regulations and is now consulting on further issues relating to existing legislation to reflect the abolition of salary-related contracting-out.  The draft Pensions Act 2014 (Abolition of Contracting-out for Salary Related Pension Schemes) (Consequential Amendments) Order 2016 comprises numerous largely minor amendments, however there are a couple of points to note.  Some of the provisions will come into force on 6 April 2016 at the same time as abolition, with others taking effect on 6 April in either 2017, 2019 or 2021.

The draft Order deals with:

  • Transfers between formerly contracted-out schemes
  • Disclosure of information requirements

Schemes with a reference scheme test underpin will be covered in the DWP’s response to this consultation.

As part of the new Order, the DWP has proposed a change to the “connected employer” test in respect of the transfer of accrued rights without member consent under the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991.  The DWP states that the updated wording “follows the same lines” as the existing version, however this will undoubtedly be subject to scrutiny as part of the consultation.

Secondly, in its response to the July 2015 consultation, the DWP stated it would consult on changes to the Contracting-out (Transfer and Transfer Payment) Regulations 1996 regarding transfers from salary-related schemes to allow members to take advantage of the new DC flexibilities.  However, this is not covered in this most recent consultation and the DWP has not confirmed whether it will form part of a future consultation.  Further consultation is envisaged relating to the new rules regarding the protection afforded to accrued rights in formerly contracted-out schemes.

The current consultation ends on 16 November 2015.

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