Abolition of DB contracting-out—the employer's statutory power to amend the scheme rules
Abolition of DB contracting-out—the employer's statutory power to amend the scheme rules

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • Abolition of DB contracting-out—the employer's statutory power to amend the scheme rules
  • Nature of employers' statutory amendment power
  • What amendments can be made using the statutory amendment power?
  • When can the statutory amendment power be used?
  • Other requirements applicable when using the statutory amendment power
  • Can the statutory amendment power be used more than once?
  • Circumstances where the statutory amendment power cannot be used
  • What happens if an amendment falls outside the scope of the statutory amendment power?
  • Application to multi-employer schemes
  • Interaction with the trustees
  • more

THIS PRACTICE NOTE APPLIES IN RELATION TO SCHEMES THAT WERE CONTRACTED-OUT SALARY-RELATED SCHEMES IMMEDIATELY BEFORE 6 APRIL 2016.

Nature of employers' statutory amendment power

Employers of schemes that were contracted-out salary-related (COSR) schemes immediately before the abolition of DB contracting-out on 6 April 2016 have been given a statutory amendment power, exercisable until 5 April 2021, which they can use to amend their scheme rules so as to offset any increase in employer national insurance contributions (NICs) costs caused by the abolition of DB contracting-out (or more specifically, caused by the repeal of NICs contracted-out rebates under section 41 of the Pension Schemes Act 1993 (PSA 1993)).

Importantly, this statutory amendment power:

  1. can be exercised by the employer without the consent of the trustees. This is a big advantage over a scheme's amendment power which is usually shared with the trustees (and which thus requires trustee consent), especially as trustees cannot agree to an amendment which is not in the scheme members' interest (such as an amendment which seeks to pass on the increase in employer NICs costs to the member, eg by increasing member contributions)

  2. generally overrides any scheme rule or regulations that would otherwise prevent the employer from making changes to the scheme

The legislative provisions introducing this statutory amendment power can be found in:

  1. section 24 and Schedule