Jurisdiction(s):
United Kingdom

Key definition

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...

Buying out contracted-out salary-related rights after 6 April 2016: Section 9(2B) and GMPs - legal requirements, consent exceptions, wind-up routes, insurer standards, and GMP equalisation.

Published by a LexisNexis Pensions expert

Practice notes

This Practice Note sets out the considerations that apply on and after 6 April 2016 (the date on which contracting-out on a salary-related basis—also described as DB contracting-out—was abolished) when undertaking a ‘buy-out’ of the following contracted-out salary-related (COSR) rights:

guaranteed minimum pensions (GMPs)—the benefits built up by members of COSR schemes as a result of contracting out between 6 April 1978 and 5 April 1997
Section 9(2B) rights (also called post-1997 COSR rights)—the benefits built up by members of COSR schemes as a result of contracting out between 6 April 1997 and 5 April 2016

The legislative requirements that apply differ according to whether the relevant COSR rights are GMPs or Section 9(2B) rights. For guidance on the considerations that applied before 6 April 2016 to the buy-out of COSR rights, see Practice Note: Buying out Section 9(2B) rights and GMPs before 6 April 2016 [Archived]. For general guidance on buy-out issues, see Practice Note: De-risking—pension buy-outs and buy-ins. For further information about the abolition of DB contracting-out on 6 April 2016, see Practice Note: Abolition of DB contracting-out—an introduction [Archived].

What is a buy-out?...

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Web page updated on 21/05/2026

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