What happened?

Sponsors will be allowed to override scheme rules and trust deeds to compensate for the increase in companies’ National Insurance payments that would not apply to former public sector schemes, the Department for Work and Pensions has confirmed. The statutory override was brought in to mitigate the effect of introducing a flat-rate state pension and the ending of contracting out.

The schemes of previously state-owned companies are “protected” because their defined benefit arrangements were guaranteed at public sector levels when these organisations were privatised. In its statement, the DWP said it would “stand by the promises made to former state workers at the time of privatisation”.

What does it mean?

This announcement will affect around 60,000 workers, representing fewer than 4% of those who are currently contracted out. Their employers will not have access to the statutory override outlined above, but will have to negotiate with their staff before taking any steps to offset National Insurance costs.

This decision will mean significant extra costs for employers and lower take home pay for employees

“The government has effectively left it to pension schemes, trustees and unions to negotiate how this will be resolved – as employers operating DB schemes with protected persons face the dilemma of whether or not they can, or should, treat their scheme members inequitably,” says Joanne Segars, chief executive of the National Association of Pension Funds.

“These protected persons belong to the largest occupational pension schemes in the country and if these negotiations are not successful, then the cost of implementing the changes will be felt by other scheme members or even the consumer,” she adds. “This decision will mean significant extra costs for employers and lower take home pay for employees.

The utilities sector will be particularly hard hit,” says Neil Carberry, CBI director for employment and skills.