Pension Planning - Contracted Out Money Purchase Schemes

Pensions Quote Line

0845 108 0505

• Home
• Credit Cards
• Loans
• Investments
• Life Insurance
• Mortgages
• Insurance

Contracted Out Money Purchase Schemes

During periods when you belong to a contracted-out occupational scheme, a pension is built through the scheme instead of the pension that you would have had through the state scheme.

In the case of a money purchase scheme, your employer must pay into the scheme an amount equal to the National Insurance rebate that is received as a result of being contracted out.

Protected rights

In a contributory scheme, your employer will require you to hand over some or all, of the rebate.

The rebate is invested and must be used to provide 'protected rights' which are:

• A pension for you This is payable from retirement but not before age 60. The whole fund must be used for pensions, none can be taken as a tax-free lump sum.
• A widow's or widower's pension This is whatever pension the fund will buy if death occurs before retirement or half your pension in the case of death after retirement.
• Pension increases once the pension is being paid at least up to inflation or five per cent a year (whichever is lower).

A contracted-out money purchase scheme can provide extra pension and other benefits in addition to protected rights.