SPO_factsheet_March_2021 BTPS State Pension Oset – Factsheet 1

Introduction

The BT Pension Scheme (the Scheme) has recently received a number of queries

about the State Pension Oset applicable under the rules of Sections B and C

of the Scheme and the impact this has on members. To help, we have set out

the legislative background to the State Pension Oset below, followed by an

explanation of how the State Pension Oset operates in relation to the Scheme.

Before 6 April 2016, individuals who reached State Pension

Age (SPA) and had paid sucient National Insurance

additional

pension was known as the State Earnings Related Pension

Scheme (SERPS). From 2002 until April 2016 SERPS was

replaced by the State second pension (S2P). If a scheme

met certain quality tests, the Government allowed it to be

used for “contracting out”. If a scheme was contracted out,

both the scheme employer and the scheme’s members paid

lower NICs to the Government, on the condition that the

scheme had to provide a minimum level of pension benefits

to members.

level of pension benefits that had similarities with the

additional State Pension that was surrendered.

From 6 April 2009 Sections B and C of the Scheme ceased

to be contracted out and contracted back into the

additional State Pension. This meant that from this date

members in these sections paid higher NICs and started

to build up an entitlement to an S2P pension to top up

their basic State Pension.

In addition, BT compensated members for the additional

NICs that they were required to pay. You will have seen

single-tier

Pension was introduced. This means that whilst your

Scheme benefits continue to build up in the same way as

previously, your total State Pension after 6 April 2016, when

added to your Scheme benefits, will not necessarily be

the same overall as it would have been if the Government

hadn’t changed the State Pension. As a result of this, some

members may be better o, and some members may be

worse o. Please see page 2 for further explanation on why

this is the case.

B and C rules, known as the State Pension Oset. The

reduction was designed at the time to be broadly

equivalent to the S2P pension members had begun to

build up (because the Scheme had ceased to contract

out), with the intention that members’ overall State and

Scheme pensions would be as near as practicable the

same as if the Scheme had continued to contract out.

The State Pension Oset, which reduces the member’s

Scheme pension from their SPA, was calculated using

a fixed formula that has been prescribed in the Scheme

the Scheme rules in April 2009, did not directly track the

S2P pension or any subsequent changes to it. As such,

although since April 2016 the State Pension Oset in

the Scheme continued to be applied using the same

fixed formula prescribed in the Scheme rules since its

introduction in 2009 (and similarly, BT continued to pay

the National Insurance allowance as it has always done

since 2009), there was no longer a link between how the

State Pension Oset in the Scheme was calculated and

how the State Pension was calculated.

unions, to close Sections B and C of the Scheme to future

accrual on 30 June 2018.

As a result, the new situation introduced by the changes

in State Pension arises only in respect of benefits accrued

between 6 April 2016 and 30 June 2018. Consequently, for

many members any dierence in benefits resulting from the

2016 revised State Pension approach is likely to be small

in the context of their overall benefits. Many, although not

necessarily all, members will have built up their combined

State Pension and Scheme benefits over that period at a

case basis.

SPO_factsheet_March_2021 BTPS State Pension Oset – Factsheet 2