TfL Pension Fund

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Contracting-out

The Fund is contracted-out of the State Second Pension (S2P) as we already provide a pension at least equal to it. In return, you pay National Insurance contributions at a reduced rate. Your basic state pension is not affected.

If you want to retire early, i.e. before the age of 60, then you can only take your pension if it is at least as much as the Guaranteed Minimum Pension (GMP) - see below for details.

You will only be allowed to exchange part of your pension for a lump sum or variable pension if the remaining pension is at least as much as the GMP.

Guaranteed Minimum Pension - background

In April 1978 the Government introduced a 'second-tier' state pension and UK employees began earning a State Earnings Related Pension (SERPS) in addition to their basic state pension.

Many employers already operated pension schemes that provided better pensions than this new state pension, and their employees were therefore 'contracted-out' of this arrangement. In return, National Insurance contributions were payable at a reduced rate. That was the case with the Fund, which has been contracted-out since 1978.

One of the conditions that pension schemes had to meet on contracting-out of SERPS was to provide their members at state pension age with a pension that was at least as good as the pension they would have received if they remained in the state scheme. This pension is called the Guaranteed Minimum Pension (GMP).

The Government changed the system from 6 April 1997 when GMPs ceased to accrue. The Fund now contracts out by providing members with a pension at least equal in value to that provided by a statutory reference scheme.

In April 2002 SERPS was replaced with the S2P.