From 6 April 2016, a single-tier state pension will replace the current two state pension elements, ie the basic pension and the state second pension (S2P).
Until now, occupational pension schemes have been allowed to contract-out of S2P by providing similar alternative benefits to those the worker would have received under S2P. In effect, members and employers of contracted-out schemes currently pay lower rates of national insurance in return for not participating in S2P.
However, as S2P will no longer exist from 6 April 2016, occupational pension schemes will no longer have the ability to contract out of it. As such, both employers and members of contracted-out schemes will see an increase in their national insurance contributions.
There may be options for employers to offset this additional financial burden, and employers operating contracted-out schemes may wish to seek expert pensions advice.