Glossary · UK
What is Contracted-Out Deduction?
A historic reduction to State Pension for people who contracted out of the additional State Pension into a workplace or personal pension.
Full Definition
A contracted-out deduction reflects years when an individual (or their employer's scheme) opted out of the additional State Pension (SERPS or S2P) in exchange for paying lower National Insurance, with the expectation that a workplace or personal pension would build up a broadly equivalent benefit instead — often reflected in a Guaranteed Minimum Pension. Contracting out ended for everyone in April 2016 when the new State Pension began, but the deduction still affects the transitional "starting amount" calculation for people who were contracted out for some of their working life.
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Disclaimer: Definitions are for guidance only. For decisions about your tax, savings, property or pension situation, always consult a qualified professional or refer to gov.uk.