On 16 March 2010, the government confirmed that contracting-out under defined contribution pension schemes will be abolished from 6 April 2012.
Angela Eagle, minister for pensions and the ageing society, said abolition was a simplification measure as contracting-out for defined contribution schemes was a complex issue. She said: "It has become increasingly difficult to determine that a scheme member would be better off by contracting-out of the additional state pension."
The announcement means after the 2011/12 tax year people in defined contribution schemes will no longer be able to contract-out of the second state pension (S2P). For those who are contracted-out through a personal or stakeholder pension, no further national insurance rebates will be paid to their scheme after the one for the 2011/12, which is likely to be paid by the Department for Work and Pensions around October 2012.
Those in contracted-out money purchase schemes will start to pay higher national insurance contributions from April 2012 onwards.
People who have been contracted out will start to build up entitlement to S2P from 6 April 2012 onwards.
Benefits built up by being contracted-out will remain in the pension scheme until the individual transfers these to an alternative arrangement or benefits are paid.
Any other contributions being paid to the pension scheme will not be affected.
