Employer Annual Returns

6.19 Employer’s Contracting-out Numbers

If you have an occupational pension scheme that satisfies certain conditions, you can apply to become a contracted-out scheme, which allows you to contract your employees out of the additional state pension, commonly known as SERPS or State Second Pension.

Once you have made an election to ‘contract-out’, and certain criteria have been met, a contracting-out certificate will be issued to you. This certificate authorises you to pay NICs at the contracted-out rate.

The certificate will contain an Employer's Contracting-out Number (ECON) and a Scheme Contracted-out Number (SCON) showing which pension scheme the certificate relates to. An ECON is a reference number allocated to an employer who operates, or is part of a group companies that operate, a contracted-out pension scheme for their employees. For employees who are part of the contracted-out pension scheme, lower contracted-out rate National Insurance contributions are paid by both the employer and employee. The ECON must be quoted on the P35 to validate the payment of contracted-out rate National Insurance contributions and also to track the employee’s contracted-out employments. This is to ensure that each individual receives their correct pension entitlement when they reach State Pension Age.

In most cases you will only have one ECON and one PAYE reference number. But there are some employers who believe that they need to submit National Insurance information using more than one ECON under one PAYE reference number when only one ECON can be quoted on the P35.

The majority of employers who have ended up with employees under more than one ECON have been involved in mergers, acquisitions or TUPE transfers (Transfer of Undertakings – Protection of Employment). This has occurred where one employer who has an ECON takes over another. If the other employer also has a contracted-out scheme it too will have an ECON (and SCON). In such instances it is normally the case that the ECON of the company being taken over should be surrendered and the ECON of the parent company/employer should be quoted on the P35.

Where a merger or acquisition has taken place it is important to keep everyone’s records up to date. If the employer which has been taken over is to become a subsidiary of the new parent company, form CA7306 should be completed to update the contracting-out certificate of the parent employer accordingly. In addition, the contracting out certificate of the employer taken over should be surrendered.

On the other hand, if the employer that has been taken over is not to continue as a subsidiary, but is to become part of the parent company, form CA7313 should be submitted to surrender their contracting-out certificate.

In both of these circumstances, you will need to complete form CA1609 (change of ECON) for all of your current employees who were previously contracted-out with the employer that has been taken over. This will allow us to update each employee’s individual National Insurance account with the parent company’s ECON.

Select the links to see forms CA1609, CA7306 and CA7313.

There may also be cases where mergers, acquisitions and TUPE transfers have taken place and the employer has either continued to use (or has set up) separate PAYE references. If this applies, you should continue to submit your Employer Annual Returns as you are doing now. The advice above only relates to employers who consider they have more than one ECON but only one PAYE reference number.

There may be some rare cases where employers have employees under more than one ECON and do not fall into the scenario outlined above. If this is the case you should contact our help-line on 0191 22 50264. This help-line is specifically for employers who believe they have more than one ECON.