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IoM Proposes End To State Pension 'Contracting Out'

by Jason Gorringe, Lowtax.net, London
14 July, 2017

The Isle of Man Treasury has launched a consultation on ending a scheme that allows some employers and employees to pay a lower rate of national insurance contribution because they are in occupational pension schemes.

The scheme, known as "Contracting out", was introduced in the 1970s as an alternative to paying the higher rate of national insurance required to qualify for the State Second Pension, also known as the Additional State Pension.

Under proposals approved in July 2016 by the Isle of Man legislature, the State Second Pension is due to cease in April 2019 with the introduction of the New Manx State Pension, so there will no longer be any reason for contracting out. In the United Kingdom contracting out came to an end in April 2016.

Ending the scheme will mainly affect the island's public sector, and mean employees having to pay higher rates of national insurance – bringing them into line with other workers – in return for increased state pension benefits. Their employers will also face higher national insurance contributions.

The Treasury consultation seeks views on how best to close the existing contracting out scheme, and how periods of membership of contracted-out occupational schemes should affect entitlement to the new Manx state pension.

The consultation, "Ending Contracting-Out of the State Second Pension," runs until September 1, 2017.

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