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United Kingdom
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Contracting-out definition What does Contracting-out mean? In pensions practice, contracting-out described the statutory option for an employee and their pension scheme to replace entitlement to the additional State Pension (SERPS/S2P) with scheme benefits, in return for reduced national insurance contributions and/or a National Insurance rebate paid to the scheme. Defined in UK social security and pensions legislation (notably the Pension Schemes Act 1993 and successors), it operated through: - salary-related (defined benefit) schemes that met the reference scheme test (and, for service to 5 April 1997, accrued guaranteed minimum pensions); and - money purchase (defined contribution) arrangements, including contracted-out money purchase schemes and appropriate personal pensions. Schemes did...
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Abolition of DB contracting-out: legal and administrative implementation issues—GMP reconciliation/rectification, revaluation and anti-franking, auto-enrolment, TUPE transfers, scheme amendments, employer costs and state pension offsets
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Practice notes
ARCHIVED:
This archived Practice Note sets out the matters that the government and HMRC—and, in turn, employers and trustees—needed to address to deliver the abolition of DB Contracting-out on 6 April 2016. It is not being updated and is provided purely for background. For more on DB contracting-out after abolition, see Practice Note: Legal regime applicable to Section 9(2B) rights and GMPs from 6 April 2016.
From 6 April 2016, contracting-out on a salary-related basis (that is, DB contracting-out) ended. Schemes that were Contracted-out salary-related (COSR) immediately before that date ceased to be contracted-out automatically with effect from then. For additional detail, see Practice Note: Abolition of DB contracting-out—an introduction [Archived].
To aid a smooth transition, the government and HMRC had to resolve a number of uncertainties and confront several challenges. Some points have not been conclusively settled. Note that benefits earned by members during COSR employment before 6 April 2016—Guaranteed Minimum Pensions (GMPs) and Section 9(2B) rights (also referred to as post-1997 COSR rights or Reference scheme test benefits)—are collectively described in this Practice Note as COSR rights...
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Web page updated on 21/05/2026
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