Contributed to a workplace or private pension pre-2016?
You might have been contracted out
If you were in work before 2016, you or your employer might have chosen to 'contract out' of the additional State Pension (SERPs) – meaning you’ll have paid less National Insurance in favour of adding those savings to a private or workplace pension. While it means you might not get the full State Pension, you haven’t lost out on that money. We explain what contracting-out means, and how to claim any pension savings you’ve lost track of.
Not entitled to full State Pension? You could have been 'contracted out'
You might have discovered, perhaps from looking at your State Pension forecast or old payslips, that you've been in a 'contracted-out' pension scheme.
This could mean you're not entitled to get a full State Pension, which is currently £230.25 a week.
To get the full amount, you'll usually need 35 qualifying National Insurance years. But if you were contracted out you might need more – it could even be as much as 40-something years.
Contracting out isn't around now – it ended on 5 April 2016 when the 'new' State Pension was introduced.
Why was I contracted out?
Contracting out was a way to use funds that would’ve been paid towards your State Pension to instead build up a private pension.
It meant you opted out of making additional payments which could have meant you got an extra amount of money on top of your State Pension (known as Additional State Pension or SERPs).
Contracting out meant that either you and your employer paid National Insurance (NI) at a lower rate, or some of your NI contributions were put into a private or final salary scheme instead of contributing to your State Pension.
This doesn't mean it's money you've lost out on. The amount you are entitled to will have been put somewhere else, and you can still claim it – on top of the State Pension amount that you're entitled to.
Who's most likely to be affected?
It could apply to you if:
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You were in one of the big public-sector final salary schemes (ie NHS, Teachers, Local Government) between 1978 and 2016 – then you’re particularly likely to have been contracted out.
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You contributed to a pension between 6 April 1978 and 5 April 2016 – not all pensions would have been contracted out during this time, but this was when it was allowed.
Your State Pension forecast will tell you if you were contracted out, and you can also check how many years of National Insurance contributions you’ve made. Your forecast will tell you the 'most you can get’, and whether you still need to build up more NI years to reach that amount.
If you're on the new State Pension (if you reached State Pension age on or after 6 April 2016) and think you're not getting paid the right amount, you should contact the Pension Service.
If you were contracted out, it's not money you've lost out on
The point of being contracted out was that the additional payments that didn't go towards your State Pension were paid into another pension arrangement which will pay you benefits in retirement.
That means any extra pension you receive from a contracted-out pension scheme is usually the same as, or more than, the Additional State Pension you would have received if you hadn't contracted out.
So if you think you’ve you might have been contracted out but aren’t sure where that money’s gone, it's worth checking – it could be worth £1,000s.
Some pension finding inspiration
I spent 2 hours racking my brain, digging through old papers and searching the internet. I remembered in the mid-1980s having some contents insurance with the Co-op back in the days when a man would come to the house to collect payments! I found they’re now managed by Royal London. I called them and they tracked my policy via an old address and returned mail from back in 1996. So I was reunited with my forgotten pension policy! I had £31,427 sitting around in my name I’d no idea existed - thank you MSE and your advice regarding pensions - it’s so important to do regular housekeeping on one's finance! - Andy, via email
How can I find a contracted-out pension?
If you think you were contracted-out (or your State Pension forecast says you were), but aren’t sure what happened to your money, there are a few options.
There are a few ways to search for Lost Pensions, and the steps below can help you find a contracted out pension.
If you’re not sure whether it was you or your employer that chose to contract out your pension, it’s worth going through both steps:
1. If YOU chose to be contracted out
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Look for any paperwork to find the names of providers. This could be old letters or annual statements from pension providers.
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Use a Pension Tracing Service such as Gretel. Gretel is a free catch-all service you can use to find pensions or other lost assets. Gretel will then do a 'soft search' on your credit report to check your identity and match you with previous addresses where you may have accounts registered. Not all financial institutions are signed up to Gretel, so you may not get a match straightaway – but it will continue to search and will let you know if your details match a lost pension in the future.
2. If YOUR EMPLOYER contracted you out
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First, check your payslips from before 6 April 2016. If you have any with the category letters D,E,L,N, or O this means you were contracted out.
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Use the Government's Pension Tracing Service. You can use the Pension Tracing Service to find out the name of the scheme your employer (or ex-employer) was signed up to. It won’t tell you whether you have a pension or not, but it will tell you the details of the workplace pension scheme your company uses.
Once you know where you might have a pension pot, the next step is to contact the providers directly. Once you locate your lost pensions and have discussed your options with your provider, you can choose what to do with.
It’s a good idea to seek independent financial advice, especially if there's anything you're not sure about or you've stumbled across a large sum of money.
Found a contracted-out pension? Decide what to do next
Once you locate your lost pensions and have discussed your options with your provider, you can choose what to do with it. Depending on the type and amount you may want to consolidate it with your other pension savings, take a lump sum, have an amount paid out to you in instalments, or take a hybrid approach.
Unsure where to start?
Pension consolidation guide, and getting free guidance
For more on understanding pensions, see our pensions need-to-knows guide
Look out for other lost pensions
Contracted out pensions aren't the only type of pension that can get lost. Job moves, new addresses and name changes can mean it's easy to lose track of your pensions over the years.
Head to our Finding lost pensions guide for tips on how to find any pension pots you might have lost track of.
Can I 'top-up' NI years, even if I was contracted out?
If you were contracted-out, it’ll likely mean you will need more that the normal 35 years-ish of contributions to get the full State Pension; for some this could mean you need 40+ years of contributions.
While you can’t top up the years that you were contracted out – these count as ‘full years’ because you were contributing to a pension elsewhere – you can top up any partial or missing years if you’re not currently eligible for the full new state pension.
Whether it's worthwhile will depend on your personal circumstances, including how many years you're missing. Our Voluntary National Insurance contributions guide has step by step guidance on how to check and top up missing year.
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