Abolition of contracting out on a defined contribution basis

S2P is an earnings-related state pension paid in addition to the basic state pension for those that have paid (or are treated as having paid) sufficient National Insurance contributions and had not contracted out. This replaced the State Earnings Related Pension Scheme (SERPS) from 2002.

Contracting out was where a person either:

• chose to give up some or all or their rights to S2P (previously SERPS) and replace it with a private personal pension, or
• gave up their right to S2P (previously SERPS) by joining an employer’s contracted-out occupational pension scheme.

Protected rights were built up when a planholder had contracted out of S2P and/or SERPS under a defined contribution (money purchase) occupational pension scheme or a personal pension scheme (including a stakeholder pension scheme). Former protected rights can also arise if contracted-out rights built up under a defined benefit occupational pension scheme are transferred into a personal pension scheme or defined contribution occupational pension scheme.

Non-protected rights are funds that had built up from pension plan contributions that were not protected rights. Contributions could include money paid in by you, your employer or money transferred into your plan from another pension arrangement.

If you have former protected rights in your plan then how you take your benefits will be affected. Restrictions around former protected rights no longer apply and the funds built up can be used in the same way as non-protected rights funds.

If you’re a member of an occupational pension scheme, we recommend that you speak to your scheme trustees for further information on what the changes mean to your plan.

We strongly recommend that you speak to your financial adviser before you make any decisions. If you don’t have a financial adviser you can find a list of advisers in your area at www.unbiased.co.uk

You can find out what type of pension you have from your yearly statements, yearly reviews or your policy documents.

Click on the links below to find out more details on how these changes will affect your specific plan: