Different ways of being Contracted Out

Contracted out Salary Related (COSR) schemes

In these occupational schemes members are provided with a Guaranteed Minimum Pension (GMP) for service between 6 April 1978 to 5 April 1997. The GMP is related to their earnings and is broadly equivalent to the amount the member would have received if they had not been Contracted-out of the state Additional Pension scheme. The GMP is payable at age 65 for men and 60 for women. These schemes are often referred to as Final Salary schemes.

From 6 April 1997 any salary related scheme that wants to Contract-out has to meet a test of overall scheme quality – the Reference Scheme Test (RST). Schemes must provide benefits for members that are broadly equivalent to, or better than, the pensions that would have been provided under the RST. These rights are known as post 97 COSR rights or section 9(2B) rights and are payable for men and women at the schemes normal pension age.

Contracted out Money Purchase (COMP) schemes

In these occupational schemes the employer pays minimum payments to the scheme that are equal to the Contracted-out rebate the employer and employee receive on their respective National Insurance contributions (NICs). From 6 April 1997 the member will receive an additional rebate on their NICs, from NISPI, which is based on their age and paid to their scheme. These payments along with any other contributions from the employer and/or member provide the member with a pension based on the value of his or her fund at retirement. The Contracted-out rights built up in a COMP scheme are known as protected rights. The difference between this type of scheme and a COSR scheme is that there is no guarantee to the pension paid. Members of COMP schemes can take a pension from their protected rights between the ages of 60 and 75, although the lower age limit will change to age 50 from April 2006 and will change again to age 55 from April 2010.

Contracted out Mixed Benefit (COMB) schemes

These occupational schemes have both COMP and COSR rights.

Appropriate Personal Pension (APP) schemes

This is a personal pension, which is taken out in agreement between an individual and pension provider. They are not occupational schemes. Minimum contributions are paid by NISPI into the APP scheme of the member’s choice. These payments along with any contributions from the member are invested so the value of the pension paid will depend on how well the investments perform. Like COMP schemes the Contracted-out rights built up in an APP scheme are known as protected rights. Members of APP schemes can take a pension from their protected rights between the ages of 60 and 75, although the lower age limit will change to age 50 from April 2006 and will change again to age 55 from April 2010.

Stakeholder Pension (SHP) schemes

These schemes run either on an APP or COMP basis. They are aimed at individuals on low to moderate earnings who don’t have any pension provision.

NI Services to Pensions Industry have certain responsibilities. Whichever method of Contracting-out applies, we make sure that the pension rights of individuals are:

- accurately recorded

- accurately maintained, and

- secured.

To do this we:

  • liase with Audit & Pension Schemes Services (APSS) in Nottingham on issues relating to Contracting-out
  • liase with the Pensions Regulator
  • liase with the Department for Work and Pensions (DWP)
  • approve arrangements for schemes that cease to Contract -out
  • have the power to withdraw or refuse approval of arrangements
  • have the power to issue certificates of non-approval and discharge of liabilities directives
  • arrange for the payment of Age Related Rebates to pension administrators and providers on behalf of individuals
  • deal with Notices of Termination of Contracted-out employment, correspondence and telephone enquiries.


An Assistant Director and Operations Business Support Manager head the organisation.

NISPI is divided into 3 main business areas. They are supported by a Pension Account Maintenance area.