Jurisdiction(s):
United Kingdom

Related legal acts

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...

Pre-abolition regime for defined benefit contracting-out: COSR statutory requirements, Section 9(2B) rights and GMPs, reference scheme test, commutation, transfers, equalisation and amendment restrictions

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Practice notes

THIS PRACTICE NOTE APPLIES IN RELATION TO SCHEMES THAT WERE contracted-out salary-related (COSR) SCHEMES BEFORE 6 APRIL 2016

Salary-related contracting-out, also known as defined benefit (DB) contracting-out, ended on 6 April 2016. Consequently, schemes that were contracted-out salary-related (COSR) immediately beforehand no longer held that status from that date. However, any contracted-out benefits earned on a salary-related basis during periods of contracted-out employment still remain. This Practice Note outlines the statutory requirements that applied to COSR schemes prior to 6 April 2016. For details of the DB contracting-out requirements relevant to former COSR schemes on and from 6 April 2016, see Practice Note: Legal regime applicable to Section 9(2B) rights and GMPs from 6 April 2016.

Legislative framework before 6 April 2016

Before abolition, the contracting-out requirements for COSR schemes were set out, among other sources, in:

Pt III of the Pension Schemes Act 1993 (PSA 1993), and
the Occupational Pension Schemes (Contracting out) Regulations, SI 1996/1172 (the Contracting-out Regs)

HMRC also issued a manual (CA14C) providing guidance for salary-related schemes in relation to contracting-out. As contracting-out legislation does not override scheme rules, the rules of COSR...

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Web page updated on 21/05/2026

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