Why do I have to pay more NI suddenly because of my pension?

Arklight

I just got an email from from payroll telling me the fantastic news that because the rules about LGPS pensions are changing, I will now have to pay quite a significantly increased percentage of NI each month and that that means my salary will now be reduced.

The email goes on to some length about this being because of how this is down to part of the State Pension no longer being "outsourced" so it now has to be funded from NI rather than my pension contribution to the LGPS.

OK I understand that, what I don't understand is if the LGPS are now not having to fund this why my LGPS payments don't appear to be going down.

What they appear to be saying in the email is that something I used to pay for through them I now have to pay for myself, but they are still going to charge me the same.

Can anyone explain this?

PensionTech

This is only tangentially relevant to your LGPS contributions - it's actually more to do with your state pension entitlement.

Historically, members (and employers) have been able to pay lower NI contributions if they had sufficient pension provision elsewhere (such as in the LGPS). In return, the member gives up their entitlement to part of their state pension.

However, because the state pension system is now changing to single-tier, there is no longer an entitlement that you can forfeit by paying lower contributions. So you will accrue state pension at a higher rate than you were previously.

You're looking at this backwards. It's not that you used to pay for it through the LGPS - it's that you used to not have to pay for it at all (because "it" was a part of the state pension that you wouldn't be getting), but you were only allowed to do so because you were in the LGPS. Now that you'll be getting that part of your state pension (well, not quite, but that's a more complicated discussion), you have to pay for it - there just isn't an option to opt-out. You will get this as well as, not instead of, your LGPS pension. Your LGPS pension will be the same so of course your LGPS contributions will also be the same.

On another note, this will cost employers more as well, and contrary to dropping contributions, pension schemes are explicitly allowed to increase member contributions or reduce pension benefits to take account of the extra cost to employers.

GunJack

edit - ninja'd by someone who can put it far better than me

greenglide

The new State Pension comes in at April 2016.

You are currently "contracted out" of the current State Second Pension scheme (S2P) previously SERPS. Because of this you pay less NI (as does your employer) in exchange for giving up this benefit.

From April S2P ends so nobody can contract out as there is nothing to contract of. Instead the state pension rules change and anyone who has a state pension age after 5/4/2016 has the ability to accrue up the £155.65 of "basic" pension depending on their NI contributions.

As part of the transitional rules past contributions are handled specially. Read some of the threads here over the last two years or so.

In addition to your NI going up are your pension contributions increasing as well? The employer has the right to recover the extra NI they have to pay from the employees as well by increasing their contributions. As a Council Tax payer who is having his pension contributions increased because of this I would like to know why public sector workers shouldnt.

Arklight

PensionTech wrote: »

This is only tangentially relevant to your LGPS contributions - it's actually more to do with your state pension entitlement.

Historically, members (and employers) have been able to pay lower NI contributions if they had sufficient pension provision elsewhere (such as in the LGPS). In return, the member gives up their entitlement to part of their state pension.

However, because the state pension system is now changing to single-tier, there is no longer an entitlement that you can forfeit by paying lower contributions. So you will accrue state pension at a higher rate than you were previously.

You're looking at this backwards. It's not that you used to pay for it through the LGPS - it's that you used to not have to pay for it at all (because "it" was a part of the state pension that you wouldn't be getting), but you were only allowed to do so because you were in the LGPS. Now that you'll be getting that part of your state pension (well, not quite, but that's a more complicated discussion), you have to pay for it - there just isn't an option to opt-out. You will get this as well as, not instead of, your LGPS pension. Your LGPS pension will be the same so of course your LGPS contributions will also be the same.

On another note, this will cost employers more as well, and contrary to dropping contributions, pension schemes are explicitly allowed to increase member contributions or reduce pension benefits to take account of the extra cost to employers.

Thanks that explains it clearly. The email my work sent round was as clear as mud.

Arklight

greenglide wrote: »

The new State Pension comes in at April 2016.

You are currently "contracted out" of the current State Second Pension scheme (S2P) previously SERPS. Because of this you pay less NI (as does your employer) in exchange for giving up this benefit.

From April S2P ends so nobody can contract out as there is nothing to contract of. Instead the state pension rules change and anyone who has a state pension age after 5/4/2016 has the ability to accrue up the £155.65 of "basic" pension depending on their NI contributions.

As part of the transitional rules past contributions are handled specially. Read some of the threads here over the last two years or so.

In addition to your NI going up are your pension contributions increasing as well? The employer has the right to recover the extra NI they have to pay from the employees as well by increasing their contributions. As a Council Tax payer who is having his pension contributions increased because of this I would like to know why public sector workers shouldnt.

Yes they did do recently. If it makes you feel any better the LGPS is self funded and I dont work for the council.

xylophone

http://pensions.cambridgeshire.gov.uk/index.php/employers/end-of-contracting-out/

https://shropshirecountypensionfund.co.uk/wp-content/uploads//2015/07/End-of-contracting-out-From-April-2016.pdf

may be of interest.

mark5

Arklight wrote: »

Yes they did do recently. If it makes you feel any better the LGPS is self funded and I dont work for the council.

None of the lgps employer contribution is funded from council tax then?

greenglide

If it makes you feel any better the LGPS is self funded and I dont work for the council.

"Self Funded" isnt the correct term.

Unlike most of the public sector schemes it is "funded" so they have a huge pile of investments which is supposed to fund their ongoing liabilities unlike others which pay their pensions out of current income.

This doesnt alter the fact that the employer (local government or other associated bodies) still pay for the scheme with real money to the scheme.

hyubh

PensionTech wrote: »

pension schemes are explicitly allowed to increase member contributions or reduce pension benefits to take account of the extra cost to employers.

Not public sector ones however, and worse, the (new) CARE schemes in the public sector were designed completely independently of the end of contracting out.

Arklight wrote: »

Yes they did do recently.

This is incorrect, if by that you are assuming a connection between a higher contribution rate and the end of contracting out. If your rate has gone up it is because you have had a pay rise (or working more hours), and so now fallen into a higher contribution band - there has been no rate adjustments for the end of contracting out.

mark5 wrote: »

None of the lgps employer contribution is funded from council tax then?

That was not what was claimed. Employer liabilities in the LGPS are largely ungrouped, and even when grouped, that doesn't mean an individual non-council employer can somehow push pension costs onto a council. What makes you (and the two people who thanked) apparently think otherwise?

mark5

hyubh wrote: »

Not public sector ones however, and worse, the (new) CARE schemes in the public sector were designed completely independently of the end of contracting out.



This is incorrect, if by that you are assuming a connection between a higher contribution rate and the end of contracting out. If your rate has gone up it is because you have had a pay rise (or working more hours), and so now fallen into a higher contribution band - there has been no rate adjustments for the end of contracting out.



That was not what was claimed. Employer liabilities in the LGPS are largely ungrouped, and even when grouped, that doesn't mean an individual non-council employer can somehow push pension costs onto a council. What makes you (and the two people who thanked) apparently think otherwise?

That's not what I said. I don't think a penny of council tax should go towards private pensions, at the same time the lgps has been far to generous for far to long, councils raise council tax far to easy and by far to much.
Employee contributions are still going to be far to low for what they receive in return.
I think you have been lucky in England (?) my council tax here in Wales has been rising at the maximum 5% per annum for a good few years now.

You said lgps is self funded and I pointed out that a large proportion of council tax goes towards lgps, over 25% I think?