News updates

08 February 2016

Main News

The end of contracting out

RPS members are likely to be affected by the end of contracting out from 6 April 2016.

Since 1978, the government has allowed workers with defined benefit pensions to contract out of the State Second Pension (S2P). This includes Railways Pension Scheme members.

Contracting out meant that workers paid reduced National Insurance contributions, but did not build up the additional State Pension (the State Second Pension/SERPS).

Watch our short video to see how you may be affected.

 


 


What's happening?

  • The State Pension is changing from 6 April 2016.
  •  Contracting out is ending.
  • Your State Pension age will depend on your date of birth.
  • The new starting level will be £155.65 per week.
  • You will need 35 qualifying years of National Insurance (NI) contributions (or credits) to qualify for the full new State Pension and a minimum of ten qualifying years for any entitlement.
  • The changes will be introduced gradually to reflect your NI contribution history up to 6 April 2016. Your pension’s starting amount will be calculated by the government.
  • The calculation of this starting amount will include a deduction if you have been contracted out of the additional State Pension. As the Railways Pension Scheme has been contracted out, your starting amount is likely to be lower than the full new State Pension, no matter how many years of NI history you have.
  • If you are aged 5​0 or over, you can request a statement which will estimate your new State Pension based on the new rules. See www.gov.uk/state-pension-statement for details. There is also a State Pension age calculator on the same site.
  • What you can claim at State Pension age will usually be based on your NI history up to that time. You may be able to add to your NI contributions and increase your new State Pension by continuing to work or by making voluntary NI contributions before you reach State Pension age.
  • From 6 April 2016, any NI contributions made will increase by the percentage you would save if you were contracted out.

Who is affected?

Anyone who reaches State Pension age on or after 6 April 2016. If you are over State Pension age – or reach it before 6 April 2016 – you will receive the current State Pension allowance.

How are you affected?

Your rail pension may be affected by the introduction of new State Pension and the end of contracting out. Your employer will decide if any changes need to be made for your section.

If you are a Protected member, no changes can be made to your benefits without your agreement.

The Railways Pension Scheme is currently contracted out and, as a result, you have paid lower NI contributions for earnings between £5,824 and £40,040 (in 2015/16 terms). Once contracting out ends, your NI contributions will increase by 1.4 per cent.

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