In the Pensions Act 2007, the Government introduced a number of changes to the calculation of the State Second Pension which were intended to apply from 2012. However, some of these changes have now been accelerated and are effective from 6 April 2009. One of these changes will have an impact on some occupational pension schemes.
Currently the Upper Earnings Limit (of £770 per week) is used to calculate both the maximum level of National Insurance Contributions and the State Second Pension, or in contracted-out schemes, the level of rebate. However, from 6 April 2009, the Upper Earnings Limit will be increased to the same level as the threshold for higher rate tax (£844 per week) and will no longer be used to calculate State Second Pension and contracted-out rebates. These will instead be calculated by reference to the new Upper Accrual Point which will initially be set at £770 per week.
The significance of this for occupational pension schemes depends on the provisions of their scheme rules. Where a scheme makes specific reference to the Upper Earnings Limit, for example when calculating the earnings used for benefit accrual, consideration will need to be given prior to 6 April 2009 to whether the rules need to be amended to refer to the Upper Accrual Point. References to the Lower Earnings Limit will not be affected by these changes.
There will also be payroll consequences for employers as P11s/P14s or their equivalents will need to include additional information on earnings between the Upper Accrual Point and Upper Earnings Limit.
The changes to the law are set out in the National Insurance Contributions Act 2008 which can be found here. The Explanatory Notes for the Act are here.
