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...

Varying salary-related (DB/COSR) contracting-out certificates before 6 April 2016: procedures, notices, consultation, APSS 155B, holding company schedules, principal employer changes and HMRC variation

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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 (often called DB contracting-out), a sponsoring employer was required to hold a contracting-out certificate for the relevant scheme in respect of that scheme. For multi-employer arrangements, in defined circumstances a certificate could be issued to the holding company, accompanied by a schedule specifying which subsidiaries the certificate covered and, where relevant, applied to. This was termed a holding company contracting-out certificate under those circumstances. For further details and background, see Obtaining a DB contracting-out certificate before 6 April 2016 [Archived]—Types of contracting-out certificates.

Over time, it could have been necessary to alter a contracting-out certificate, for example:

to update the particulars of an employer named on the certificate or the scheme’s title
to revise the categories of employment included within the certificate
to include or exclude a subsidiary on a holding company contracting-out certificate (for example, following a transaction or group reorganisation)

This Practice Note explains the procedures that had to be observed, prior to the abolition of DB contracting-out on 6 April 2016, to vary a contracting-out certificate for a contracted-out salary-related (COSR) scheme...

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Web page updated on 22/05/2026

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