Contracting out of the State Second Pension (S2P).
Contracting-out is the mechanism by which individuals opt to replace part of their state pension entitlement with private pension provision such as a company scheme or personal pension.
If you take the decision to contract out via a personal pension, the Inland Revenue will pay a rebate on your national insurance contributions into your pension fund.
The rebates are designed to encourage people to effect a private pension scheme, the idea being that the rebates will be invested and may grow to more than the value of the state provision you have given up.
Contracting out will remain possible under the new State Second Pension, however the benefits given up and the National Insurance rebates will be calculated slightly differently to those under the State Earnings Related Pension Scheme (SERPS).
If any individual is contracted out of SERPS, the contracting out certificate
should automatically be applied to the new S2P without further paperwork.
