Contracted Out Definition

Question - What Does The Term Contracted Out Mean?

Answer - Occupational Pension schemes can contract out of the state second pension if they meet certain conditions. If you are a member of such a scheme it means you will not build up any entitlement to the state second pension while you are a member. Instead, some of what you would have to pay as National Insurance contributions goes to your pension scheme. The contracting out rules are meant to ensure that your own scheme offers a better deal than the state second pension it is replacing.

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