As well as employer and employee contributions, an individual could have built up an entitlement to an employers or personal pension through ‘contracting out’. Global QROPS Ltd have established, in previous news items, that these benefits are both transferrable to a QROPS (Qualifying Recognized Overseas Pension Scheme) and not detrimental to the Basic state pension. Having said that, what affect does contracting out have on the State pension overall?
What impact does contracting out have on my state pension entitlement?
When an individual is contracted out, some (or even all) of their entitlement to additional state pension (S2P) or State Earnings Related Pension (SERPS) would be reduced or even lost.
The affected on an individual’s overall benefit depends on whether they are contracted out under a stakeholder/personal pension plan or their employer’s Occupational pension scheme (such as a contracted out salary related pension scheme (COSR) or a contracted out money purchase occupational pension scheme (COMP).
Some of the national insurance contributions (NICs) paid by an employer or an individual, contribute towards their state pension. If an individual is contracted out, they lose some or all of their entitlement to the additional part of the state pension over and above the Basic State Pension. (Global QROPS Ltd can help their clients obtain a State Pension forecast in order to determine their State pension entitlements).
As a result of this, the State reduces the NIC liability on earnings between the lower earnings limit and the ‘upper accrual point’ for these individuals and their employers.
The method used to reduce the NIC liability depends on whether the individual is contracted out under a COSR, COMP or personal pension. For Global QROPS Ltd’s clients, that are looking to transfer to QROPS from a contracted out scheme, they can conceivably transfer from all of these schemes regardless of the method of contracting out.
