Part III Certification of Pension Schemes and Effects on Members’ State Scheme Rights and Duties

Chapter II Reduction in state scheme contributions and Social Security benefits for members of certified schemes

F1Reduced rates of contributions, and rebates, for members of money purchase contracted-out schemes

42AReduced rates of Class 1 contributions, and rebates

F2(1)

Subsections (2) to F3(2D) and (3) apply where—

(a)

the earnings paid to or for the benefit of an earner in any tax week are in respect of an employment which is contracted-out employment at the time of the payment, and

(b)

the earner’s service in the employment is service which qualifies him for a pension provided by a money purchase contracted-out scheme;

and in subsections (2) and (2A) “the relevant part”, in relation to those earnings, means so much of those earnings as exceeds the current lower earnings limit but not F4the upper accrual point (or the prescribed equivalents if the earner is paid otherwise than weekly).

F5(2)

The amount of any primary Class 1 contribution F6attributable to section 8(1)(a) of the Social Security Contributions and Benefits Act 1992 in respect of the earnings shall be reduced by an amount equal to the appropriate flat-rate percentage of the relevant part of the earnings (“Amount R1”).

(2A)

The amount of any secondary Class 1 contribution in respect of the earnings shall be reduced by an amount equal to the appropriate flat-rate percentage of the relevant part of the earnings (“Amount R2”).

(2B)

The aggregate of Amounts R1 and R2 shall be set off—

(a)

first against the aggregate amount which the secondary contributor is liable to pay in respect of the contributions mentioned in subsections (2) and (2A); and

(b)

then (as to any balance) against any amount which the secondary contributor is liable to pay in respect of a primary or secondary Class 1 contribution in respect of earnings—

(i)

paid to or for the benefit of any other employed earner (whether in contracted-out employment or not), and

(ii)

in relation to which the secondary contributor is such a contributor;

and in this subsection any reference to a liability to pay an amount in respect of a primary Class 1 contribution is a reference to such a liability under paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992.

(2C)

If—

(a)

any balance remains, and

(b)

the secondary contributor makes an application for the purpose to the Inland Revenue,

the Inland Revenue shall, in such manner and at such time (or within such period) as may be prescribed, pay to the secondary contributor an amount equal to the remaining balance.

But regulations may make provision for the adjustment of an amount that would otherwise be payable under this subsection so as to avoid the payment of trivial or fractional amounts.

(2D)

If the Inland Revenue pay any amount under subsection (2C) which they are not required to pay, they may recover that amount from the secondary contributor in such manner and at such time (or within such period) as may be prescribed.

(3)

The F7Inland Revenue shall except in prescribed circumstances or in respect of prescribed periods pay in respect of that earner and that tax week to the trustees or managers of the scheme or, in prescribed circumstances, to a prescribed person the amount by which—

(a)

the appropriate age-related percentage of that part of those earnings,

exceeds

(b)

the appropriate flat-rate percentage of that part of those earnings.

(4)

Regulations may make provision—

(a)

as to the manner in which and time at which or period within which payments under subsection (3) are to be made,

(b)

for the adjustment of the amount which would otherwise be payable under that subsection so as to avoid the payment of trivial or fractional amounts,

(c)

for earnings to be calculated or estimated in such manner and on such basis as may be prescribed for the purpose of determining whether any, and if so what, payments under subsection (3) are to be made.

(5)

If the F8Inland Revenue F9pay an amount under subsection (3) which F9they F9are not required to pay or is not required to pay to the person to whom, or in respect of whom, he pays it, he may recover it from any person to whom, or in respect of whom, he paid it.

(6)

Where—

(a)

an earner has ceased to be employed in an employment, and

(b)

earnings are paid to him or for his benefit within the period of six weeks, or such other period as may be prescribed, from the day on which he so ceased,

that employment shall be treated for the purposes of this section as contracted-out employment at the time when the earnings are paid if it was contracted-out employment in relation to the earner when he was last employed in it.

(7)

Subsection (3) of section 41 applies for the purposes of this section as it applies for the purposes of that.

F10(8)

For the purposes of this section “the appropriate age-related percentage” and “the appropriate flat-rate percentage”, in relation to a tax year beginning before the abolition date, are the percentages specified as such for that tax year in an order made under section 42B (as it had effect prior to that date).

42BDetermination and alteration of rates of contributions, and rebates, applicable under section 42A

(1)

The Secretary of State shall at intervals of not more than five years lay before each House of Parliament—

(a)

a report by the Government Actuary or the Deputy Government Actuary on the percentages which, in his opinion, are required to be specified in an order under this section so as to reflect the cost of providing benefits of an actuarial value equivalent to that of the benefits F11(or parts of benefits) which, in accordance with section 48A below and Schedule 4A to the Social Security Contributions and Benefits Act 1992, are foregone by or in respect of members of money purchase contracted-out schemes,

(b)

a report by the Secretary of State stating what, in view of the report under paragraph (a), he considers those percentages should be, and

(c)

a draft of an order under subsection (2).

(2)

An order under this subsection shall have effect in relation to a period of tax years (not exceeding five) and may—

(a)

specify different percentages for primary and secondary Class 1 contributions, and

(b)

for each of the tax years for which it has effect—

(i)

specify a percentage in respect of all earners which is “the appropriate flat-rate percentage” for the purposes of section 42A, and

(ii)

specify different percentages (not being less than the percentage specified by virtue of sub-paragraph (i)) in respect of earners by reference to their ages on the last day of the preceding year (the percentage for each group of earners being “the appropriate age-related percentage” in respect of earners in that group for the purposes of section 42A).

(3)

If the draft of an order under subsection (2) is approved by resolution of each House of Parliament, the Secretary of State shall make the order in the form of the draft.

(4)

An order under subsection (2) shall have effect from the beginning of such tax year as may be specified in the order, not being a tax year earlier than the second after that in which the order is made.

(5)

Subsection (2) is without prejudice to the generality of section 182