Contracting-out

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

To view the latest version of this document and thousands of others like it, sign-in with LexisNexis or register for a free trial.

Powered by Lexis+®
Latest Pensions News

DWP to evaluate pension scheme climate disclosure regime as part of government’s modernisation of climate disclosure and transition planning in UK financial markets

As part of its efforts to modernise the UK’s sustainability reporting framework, the government has introduced three consultations intended to “unlock billions in clean energy investment”. In doing so, the government is consulting on how to implement its manifesto commitment to mandate UK-regulated financial institutions (including banks, asset managers, pension funds and insurers),  as well as FTSE 100 companies,  to develop and implement credible transition plans that align with the 1.5C goal of the Paris Agreement. The government sees transition planning as a vital part of its commitment to secure the UK’s position as the green finance capital of the world. Notably, one consultation from the Department for Energy Security and Net Zero, seeks views on how the government should implement this commitment by ensuring an orderly transition aligned with global climate goals, aiming to enhance transparency to facilitate efficient capital allocation, enabling companies to seize opportunities from the global net zero transition, and bolstering the growth and international competitiveness of the UK’s financial services industry.  In particular, the consultation from the Department for Energy Security and Net Zero indicates that during 2025, the Department for Work and Pensions (DWP) will conduct a review of the Occupational Pension Schemes (Climate Change, Governance and Reporting) Regulations 2021, SI 2021/839, utilising evidence provided by the Pensions Regulator (TPR). The DWP regards this review as a logical starting point to assess the effects of the current climate disclosure regime (put in place following the recommendations from the Taskforce on Climate-Related Financial Disclosures (TCFD)) and to consider future steps for climate change reporting. In parallel with the TCFD review, the DWP has tasked TPR with evaluating the feasibility of transition plans within pension schemes. Accordingly, TPR is organising an industry working group, including key stakeholders and major occupational pension schemes, and is set to deliver its findings to the DWP later in 2025.

View Pensions by content type :

Popular documents