Abolition of DC contracting-out
Produced in partnership with Wyn Derbyshire of gunnercooke LLP
Abolition of DC contracting-out

The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:

  • Abolition of DC contracting-out
  • Contracting-out on a money purchase basis before 6 April 2012
  • Abolition of protected rights on and from 6 April 2012
  • Which schemes were affected by the abolition?
  • Impact of abolition on restrictions relating to protected rights
  • Impact of abolition on protected rights underpins
  • Impact of abolition on transfer of former protected rights
  • Disclosure obligations arising from abolition

Contracting-out on a money purchase basis before 6 April 2012

Contracting-out was the mechanism whereby an individual (whether employed or self-employed) could elect to forgo accrual of the element of the State pension which, before 6 April 2016, was known as the additional State pension (or Second State Pensions (S2P)).

Contracting-out on a money purchase basis (or DC contracting-out) first became possible in April 1988.

Contracting-out on a money purchase basis required the relevant contracted-out pension scheme to provide contracted-out members with ’protected rights’ in lieu of the state benefits forgone as a consequence of contracting-out.

Schemes contracted-out on a money purchase basis

Before 6 April 2012, protected rights could be provided through the following contracted-out schemes:

  1. contracted-out money purchase (COMP) schemes. While these occupational pension schemes were mostly defined contribution schemes, there could also be defined benefit schemes contracted out on a money purchase basis through a protected rights underpin

  2. the COMP section of mixed benefit (COMB) schemes. COMB schemes were created on 6 April 1997 and made it possible for a contracted-out salary-related (COSR) scheme to contract out on a money purchase basis (by creating a COMP section) and for a COMP scheme to contract out on a salary-related basis (by creating a COSR section). COMB schemes operated on the principle that the money purchase and salary-related sections were treated