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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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Section 9(2B) and GMP transfers post-6 April 2016: individual/bulk routes, consent rules, receiving scheme eligibility, connected employer transfers, 2017/2018 reforms and GMP equalisation considerations
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Practice notes
contracting-out on a salary-related basis (also known as defined benefit (DB) contracting-out) was abolished on 6 April 2016.
Before abolition, members of contracted-out salary-related (COSR) schemes could have built up one of two forms of contracted-out entitlement. In this Practice Note, these are collectively described as ‘contracted-out salary-related rights’ or, in short, ‘COSR rights’.
- Guaranteed minimum pensions (GMPs), being contracted-out rights built up before 6 April 1997
- Section 9(2B) rights (also called post-1997 contracted-out salary-related rights or post-1997 COSR rights), being contracted-out rights built up between 6 April 1997 and 5 April 2016
The framework for transferring COSR rights is prescribed by the Contracting-out (Transfer and Transfer Payment) Regulations 1996, SI 1996/1462 (the Contracting-out Transfer Regulations). HMRC has issued guidance on transferring COSR rights.
This Practice Note addresses transfers carried out after the end of DB contracting-out, namely on and from 6 April 2016. For material on transfers of COSR rights made prior to the abolition of DB contracting-out, see Practice Note: Transfers of Section 9(2B) rights and GMPs before 6 April 2016 [Archived]. For information on the transfer of protected rights (ie contracting-out rights accrued in a...
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Web page updated on 21/05/2026
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