A detailed guide to State Pensions for advisers and others

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Contracting out of the additional State Pension scheme
Since 1978 it has been possible for employees to opt out of the additional State
Pension scheme. This is called ‘contracting out’ and means their additional
State Pension will be reduced.
The effect on the additional State Pension
From 6 April 1978 to 5 April 1997 (SERPS)
Any additional State Pension earned through SERPS from 6 April 1978 to 5 April 1997
is reduced (which could be to a nil amount) if the person was contracted out at any
time during this period.
From 6 April 1997 until 5 April 2002 (SERPS)
SERPS is not paid for any week a person was contracted out.
From 6 April 2002 (State Second Pension)
The State Second Pension is reduced (which could be to a nil amount) if a person
is contracted out.
If a husband, wife or civil partner has died – inherited SERPS and inherited
State Second Pension
A person whose husband, wife or civil partner has died may be able to inherit
additional State Pension from their late husband, wife or civil partner (known as
the contributor). In some limited circumstances this may also apply where the late
contributor had been contracted out of SERPS all their life. The surviving spouse or
civil partner may inherit 50% of the State Second Pension. How much SERPS
pension they may inherit depends on the date their late husband, wife or civil
partner reached (or would have reached) their State Pension age.
If the person marries or forms a new civil partnership before they reach their State
Pension age, they will no longer be able to rely on their late husband, wife or late
civil partner’s additional State Pension record.
Inherited additional State Pension is paid by way of a Category B pension
(see pages 44 to 49).
In addition, if the deceased spouse or civil partner was contracted out, the
inherited additional State Pension may be reduced to reflect this.
Inherited SERPS
When SERPS was introduced in 1978, a person could inherit up to 100% of their
late husband’s or wife’s entitlement. The Government changed the law in 1986 and
it was intended that if a husband or wife died after 6 April 2000, the person would
only be able to inherit up to 50% of their late husband’s or wife’s entitlement.
It became clear that for many years after 1986 some people were given incorrect
or misleading information about the change and may have planned for their
future on that basis. As a result the Government introduced new rules that mean,
there is a gradual reduction in the maximum percentage that someone may inherit.
[SS (Inherited SERPS) Regs 2001]