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...

DB contracting-out certificates: surrender procedures, notices, consultation, continuity provision and HMRC cancellation (pre-6 April 2016)

Published by a LexisNexis Pensions expert

Practice notes

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

To contract out on a salary-related basis (DB Contracting-out), the Sponsoring employer was required to possess a Contracting-out certificate for the relevant scheme. Where a scheme involved more than one employer, a certificate could, in certain circumstances, be issued to the holding company, with an accompanying schedule identifying the subsidiaries it covered. This was referred to as a holding company contracting-out certificate. For further details, see Obtaining a DB contracting-out certificate before 6 April 2016 [Archived]—Types of contracting-out certificates.

In due course, it might have become necessary to surrender a certificate, for instance:

after deciding to contract back into the additional State pension; or
following a group reorganisation where the certificate-holding company no longer had any employees.

This Practice Note explains the procedures that, prior to the abolition of DB contracting-out on 6 April 2016, had to be followed to surrender a contracting-out certificate for a contracted-out salary-related (COSR) scheme. For more on the abolition of DB contracting-out, see Practice Note: Abolition of DB contracting-out—an introduction [Archived]...

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Web page updated on 21/05/2026

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