Abolition of DB contracting-out—an introduction
Abolition of DB contracting-out—an introduction

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • Abolition of DB contracting-out—an introduction
  • Why was DB contracting-out abolished?
  • Impact of abolition on former contracted-out employers and employees
  • How was the abolition of DB contracting-out implemented?
  • What legislative changes were made to reflect the abolition of DB contracting-out?
  • Employer's statutory power to amend the scheme rules
  • Treatment of COSR rights from 6 April 2016
  • Dealing with implementation issues
  • Application of the Pension Consultation Regs
  • Application of the disclosure requirements
  • more

This Practice Note focuses on the abolition of 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 DC contracting-out), was abolished earlier on 6 April 2012. For more 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: Contracting-out of the additional state pension—what does it mean?

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.White Paper: The single-tier pension (14 January 2013), para 52

As the underlying purpose of contracting-out was to reduce the financial burden on the state pension system by transferring the responsibility for the additional state pension from the state to contracted-out private sector pension schemes, the disappearance of the additional state pension necessarily resulted in the abolition of contracting-out.

The intention was initially for the reforms to be introduced on April 2017, however a written ministerial statement dated 19 March 2013 brought forward these plans to 6 April 2016.

Impact of abolition on former contracted-out employers and employees

State pension entitlement

Both contracted-in and contracted-out employees have been affected by the changes