Contracting-out

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Meaning of ‘contracting-out’

Until 5 April 2016, some schemes could 'contract out' of the additional state pension, while others were 'contracted-in'.

Between 6 April 2002 and 5 April 2016, the additional state pension was the pension arising under the State Second Pension (S2P); prior to 6 April 2002, it was the pension arising under the State Earnings Related Pension Scheme (SERPS).

On 6 April 2016, the additional state pension disappeared. The government combined the basic state pension and the additional state pension into a single-tier state pension, whereby individuals earn a flat rate of state pension based not on their earnings but on the number of years during which they paid national insurance contributions (NICs). This state pension reform resulted in the abolition of contracting-out. For more information, see 'Abolition of DB contracting-out from 6 April 2016' below.

If an individual was 'contracted-in' to the additional state pension through their scheme, they received an additional earnings-related pension from the state on top of their basic state pension. If an individual was 'contracted out' of the additional state pension, they did not receive the additional

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