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4.5.3 Contracting Out Options

  • Occupational Salary Related Schemes:


    1. Contract out via GMP; since November 1986 there is no requirement for the provision of reasonable or requisite benefits in addition to the GMP.
    2. Full occupational scheme rules apply.
    3. GMP's accrued in line with SERPS up until 5/4/97. Pre-6/4/88 GMPs are increased by the state in full. Post 5/4/88 GMPs are increased by the scheme up to 3% (or RPI if less), and the state pays any balance up to RP.I
    4. Contracting out schemes have to give requisite benefits in line with the reference scheme from 6th April 1997, and increases have to be in line with LPI, i.e. at 5% or RPI if less.
    5. Widow's/widower's GMP of 50% (100% widow benefit up to 05/04/88) of scheme member's GMP payable; only post 05/04/88 service qualifies for widower's GMP.
    6. Under S2P, equivalent benefits are maintained, with any shortfall dealt with by government via an S2P top up.

  • Contracted Out Money Purchase Scheme (COMPS)


    1. Contracts out via protected rights. This is not a guarantee of equivalent benefit, as with the GMP, but rather an individual's right to benefit resulting from the investment of the re-directed 'rebate' sums. Protected rights do not include a GMP or requisite benefits.
    2. Under S2P, equivalent benefits are maintained, with any shortfall dealt with by government via an S2P top up.
    3. The employer must contribute
    4. The NI rebate must be paid to the pension provider within 14 days of the end of the tax month in which they were made.
    5. Protected rights commence at state pension age or age 60 for men if NRA is 60, and offer pension only, the pension to increase at 3% per annum or RPI rate if less (prior to 6 April 1997) or 5% pa or RPI if less, on benefits secured after 6th April 1997.
    6. It is not possible to take early retirement protected rights, nor in the form of cash.
    7. Usually, annuity rates vary between male and female to reflect life expectancy. The protected rights element must purchase an annuity which has the same rate for both sexes; and which increases by the lower of RPI or 3% pa.
    8. From 6th April 1997 it will be possible to buy an annuity on single life rates, but only in respect of service/benefits post that date. Benefits must increase at the rate of LPI.
    9. This route has been available since 6th April 1988.

  • Free Standing Additional Voluntary Contributions (FSAVC)


    1. Very few providers offer contracting out as an option under FSAVC schemes, because doing so through an APP is always better (see point 5). When offered however, they are subject to similar conditions as COMPS.
    2. Not available for employer additional contributions.
    3. The eventual benefits produced will count towards Revenue maximum benefit limits.
    4. The rebate contributions, however, will be in addition to the otherwise maximum personal contributions of 15% of earnings.
    5. Unlike the APP, however, tax relief is not grossed up and added into the rebate.
    6. Employee must be a member of an occupational pension scheme.

  • Appropriate Personal Pension (APP)


    1. Contracts out via protected rights
    2. No need for employer or employee contribution
    3. Benefits purchased by the rebates do not count towards Revenue benefit limits.
    4. Rebate contributions may be in addition to normal maximum contributions.
    5. At the end of the tax year (unlike the COMPS route) the DSS pays directly to the pension provider the relevant rebate sums plus incentive where claimed.
    6. This route has been available since 1st July 1988.

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