Abolition of DB contracting-out—an introduction

Published by a ��˾��ҹ�� Pensions expert

Practice notes

Abolition of DB contracting-out—an introduction

Published by a ��˾��ҹ�� Pensions expert

Practice notes

This Practice Note focuses on the abolition of defined benefit (DB) contracting-out from 6 April 2016.

The only other form of contracting-out that ever existed, contracting-out on a money purchase basis (also known as defined contribution (DC) contracting-out), was abolished earlier on 6 April 2012. For further information on this, see Practice Note: Abolition of DC contracting-out.

For information generally on the meaning and purpose of contracting-out, see Practice Note: What does ‘contracting-out’ mean for pension lawyers?

Why was DB contracting-out abolished?

On 6 April 2016, contracting-out on a salary-related basis (also known as DB contracting-out) ceased to exist. Schemes that were contracted-out salary-related (COSR) schemes immediately before 6 April 2016 automatically ceased to be contracted-out with effect from that date.

This was originally announced in a white paper published in January 2013, in which the government outlined plans to combine the basic state pension and the additional state pension (known as the State Second Pension or S2P) into a single-tier flat-rate state pension.

As the underlying purpose of contracting-out was to reduce the financial burden on

Jurisdiction(s):

United Kingdom

Key definition:

Contracting-out definition

What does Contracting-out mean?

An arrangement under which a member of a pension scheme that meets certain requirements pays reduced insurance-contributions-'>national insurance contributions and/or rebates are paid to the pension scheme in return for which the scheme provides benefits as an alternative to state earnings related pension scheme (SERPS)/S2P/additional state pension. Contracting-out was abolished with effect from 6 April 2016.

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