Abolition of DB contracting-out—implementation issues
Abolition of DB contracting-out—implementation issues

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

  • Abolition of DB contracting-out—implementation issues
  • Reconciliation of scheme membership data
  • Contributions Equivalent Premiums (CEPs)
  • Auto-enrolment issues for former COSR schemes
  • Business transfers
  • Incorporation of requirements into scheme rules
  • Increased costs for employers
  • State pension offsets contained in scheme rules
  • Where the reference scheme test acts as a benefit underpin
  • GMP increases
  • more

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.

For more information, see Practice Note: Abolition of DB contracting-out—an introduction.

To ensure a smooth implementation, the government and HMRC have had to clarify various uncertainties and face certain challenges. Not all of these issues have been satisfactorily resolved.

Note that the rights accrued by members in COSR employment before 6 April 2016, namely Guaranteed Minimum Pensions (GMPs) and Section 9(2B) rights (also known as post-1997 COSR rights or reference scheme test benefits) are jointly referred to in this Practice Note as COSR rights.

Reconciliation of scheme membership data

Trustees are responsible for ensuring that their scheme records are accurate and for paying the correct level of scheme benefits. Due to the possibility of discrepancies between scheme data and data held by HMRC, it was good practice for schemes to reconcile their COSR data with records held by HMRC following the abolition of contracting-out. This was for the following reasons:PASA: Call to action for trustees and scheme administrators on GMP reconciliation, January 2015HMRC: Countdown bulletin 20 - October 2016 (14 October 2016)

  1. to avoid later funding gaps caused by paying incorrect benefits

  2. to avoid overpayment of benefits

  3. to ensure that the scheme's legal obligations are met

  4. to minimise member queries, and

  5. ultimately, to facilitate any future buy-out exercise, wind-up or PPF entry

To cope with the amount of reconciliation requests received in the run-up to April 2016, HMRC launched a Scheme Reconciliation Service in