What does ‘contracting-out’ mean for pension lawyers?
Published by a LexisNexis Pensions expert
Practice notesWhat does ‘contracting-out’ mean for pension lawyers?
Published by a LexisNexis Pensions expert
Practice notes
Interaction with the additional state pension
Before 6 April 2016, there were two levels of state pension provision:
- •
the basic State pension—this was a flat rate broadly based on the amount of National Insurance Contributions (NICs) a person paid or was treated as having paid, and
- •
the additional State pension known as the State Second Pension (S2P)—as its name indicated, it was a pension paid on top of the basic State pension. It was related to an individual's earnings. Note that prior to April 2002, the additional State pension was known as the State Earnings Related Pension Scheme (SERPS)
Before 6 April 2016, pension schemes could either 'contract in' or 'contract out' of the additional State pension.
If a pension scheme was 'contracted-in' to the additional State pension, members would receive the additional State Pension on top of their basic State pension (depending on their earnings).
If a pension scheme was 'contracted-out' of the additional State pension, scheme members would not receive the additional State pension. In exchange:
- •
the scheme had to provide
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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Contract definition
What does Contract mean?
A contract is a legally binding promise (oral or in writing) by one person to fulfil an obligation to another person in return for consideration. A binding contract comprises four elements: offer, acceptance, consideration and intention to create legal relations.
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