When did Contracted Out Pensions End?
If you`re a UK worker who is currently receiving a pension, or soon to be transitioning into retirement, you may have heard the term “contracted out” pensions. But what does this mean, and when did contracted out pensions end?
Firstly, let`s define what a contracted out pension is. In the UK, workers used to have the option to “contract out” of the state pension scheme and instead put their National Insurance contributions into a private pension. This was introduced in the 1970s as a way of encouraging people to save for their retirement.
Workers who chose to contract out would receive a lower state pension, but would also receive additional income from their private pension. The idea was that this would provide a higher overall retirement income, although there was a risk involved as the private pension was subject to investment fluctuations.
So, when did contracted out pensions end? The answer is April 2016. The UK government decided to scrap the ability to contract out as part of a wider pension reform. This means that all workers now pay the full National Insurance contributions towards the state pension, and there is no longer an option to divert these contributions into a private pension.
What does this mean for current and future retirees? For those who have already contracted out, there will be no change to their pension income. However, for those who were considering contracting out, this is no longer an option.
It`s worth noting that the state pension has also undergone some changes in recent years. The age at which people can claim their pension has been gradually increasing, and there have been changes to the amount of pension someone can receive based on their National Insurance contributions.
In conclusion, contracted out pensions ended in April 2016 as part of a wider pension reform. This means all UK workers now pay the full National Insurance contributions towards the state pension, and there is no longer an option to divert these contributions into a private pension. It`s important for current and future retirees to stay informed about these changes to ensure they have a clear understanding of their pension income.