This is the process of electing to have National Insurance contributions, which would have been credited to S2P, redirected into a Personal Pension Plan.
Your pension scheme can provide you with benefits which replace the State Earnings-Related Pension Scheme (SERPS). In this case, part of your and your employer's National Insurance Contributions will be paid into your pension scheme. This is called contracting out of SERPS.
You can opt out or 'contract out' of (leave) the State Second Pension. Although you and your employer continue to pay the higher rate of National Insurance contributions, the state will pay an age-related rebate (refund) into a separate pension pot for you. [ Back to A to Z list
most occupational pension schemes are contracted out of SERPS (see below); this means that they pay lower national insurance contributions and if they are final salary schemes they are currently committed to pay either a pension in place of SERPS (the guaranteed minimum pension) or to make a set level of contributions if they are money purchase schemes.
Paying your National Insurance Contributions into a pension scheme other than the State Earnings Related Pension Scheme (SERPS).
Essentially opting out of the earnings related part (SERPS) of the State pension arrangements.
Employers may decide to provide to employees either Money Purchase or Final Salary Schemes, in which case a decision will be made to either contract-out or remain contracted in to the State Second Pension. In the event of a scheme being contracted-out, the responsibility for providing the State Second Pension benefit, for the period of pensionable employment, would normally rest solely with the employers scheme.