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Government Calls Time on Contracting Out

The government currently allows you to opt out of the State Second Pension - this is called 'contracting-out'.   You may also have known it as SERPS or the State Earnings Related Pension Scheme.

The State Second Pension is the pension that the government provides on top of your basic old-age pensions.  You will qualify for this additional pension if you are or have been employed and  you have been earning in excess of the threshold set by the government.  For the 2011/12 tax year this threshold is £5,304. If you are contracted out the government pays some of your National Insurance Contributions to your own individual pension arrangement; these payments are known as rebates.

If you are due to take your retirement benefits prior to April 2012 then these changes will not affect you.  However if you are due to retire after this date and you are contracted out then you will notice some changes.  After April 2012 you will receive no further rebate payments into your plan. The contracted out funds that you have built up so far will remain invested and will be treated in the same way as the remainder of your pension pot.

In addition to this the limitations currently applied to the contracted out part of your pension pot will be removed. You will no longer be required to provide a retirement income to your spouse or civil partner in the event of your death unless you choose to do so.

You can find out more information on the benefits available under the State Second Pension by downloading the HM Revenue & Customs factsheet at https://www.gov.uk/additional-state-pension

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