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Changes to the 'Contracting out' status of the Local Government Pension Scheme (LGPS)

The Government made a change from April 2016 which means that employers and employees in 'Defined Benefit' pension schemes (which include the LGPS and all other public sector schemes) will pay more National Insurance (NI) from this date.

As a member of the LGPS, your NI rebate of 1.4% (on earnings between £5,830 and £40,040) ended from this date. However, you only pay NI contributions on earnings over the Primary Threshold (PT) of £8,060. Therefore, if you earn above the PT, more NI contributions will be deducted from your gross pay each month, starting April 2016.  Your employer will have communicated this change in separate communications.

The reason for this change is due to the Government introducing a new state pension for anyone retiring after 5 April 2016, which removed the need for an additional state pension and this is why the NI rebate has stopped.

The previous State pension came in 2 parts:

  • Basic State Pension - This was received by all workers who've paid or been credited with National Insurance contributions. To receive a full basic State Pension, you needed at least 30 qualifying years. It was a fixed amount.
  • State Second Pension - (S2P, formerly the State Earnings Related Pension Scheme also known as SERPS). How much you get depended on your earnings and whether you’ve claimed certain benefits. This was not fixed.

Contracting out was introduced in April 1978 to relieve members of the burden of paying for both an occupational pension and SERPS (S2P from April 2002). This meant that you would no longer receive an additional state pension on retirement, but would benefit from paying less NI contributions and being a member of your occupational pension scheme instead.

For more information on the Department for Works & Pensions Changes to the State Pension Q&A factsheet, click here.

To read our Q&A on the New State Pension & National Insurance changes factsheet, click here.

Last updated: 12/04/2021