Contracted Out Money Purchase Schemes (COMPs)
A COMPS (Contracted Out Money Purchase Scheme), or perhaps known as a “hybrid scheme”, or defined contribution with a defined benefit scheme is a type of workplace pension that worked much like a personal pension. Both you and your employer would contribute, the money was invested, and at retirement most people would have bought an annuity (a guaranteed income for life).
The idea being that you keep a guaranteed source of income, while having an invested pot to pay for this. This reduced the company’s costs as you were effectively paying for your own income, rather than a “pure” defined benefit scheme that the scheme were responsible for paying.
Contracting Out and GMP
If you were a member of a COMPS before 1997, you were “contracted out” of SERPS (the State Earnings Related Pension Scheme). In return for paying reduced National Insurance, your scheme had to guarantee you a minimum level of pension — the Guaranteed Minimum Pension (GMP).
This meant your benefits often consisted of:
A pot of invested money, and
A GMP underpin — the minimum income your scheme was obliged to provide.
The Reference Scheme Test (RST)
From 6 April 1997, the rules for contracting out changed. Instead of building up GMP, schemes had to meet a new standard called the Reference Scheme Test (RST).
The RST compared a scheme’s benefits against a model “reference scheme,” which broadly promised:
A pension of 1/80th of earnings for each year of service, plus
A 50% spouse’s pension, and
Increases in line with inflation (up to 5% a year).
In simple terms:
Pre-1997 service → built up GMP.
Post-1997 service → tested against the RST.
This means many older COMPs carry two sets of promises: GMP for pre-1997 service, and RST benefits for post-1997.
Taking Benefits from a COMP with GMP/RST
When it’s time to take benefits:
The GMP element has to be secured first — typically through an annuity that meets strict rules (50% spouse’s pension, statutory increases, etc.).
For post-1997 service, benefits must still meet the RST standard, meaning the pension must be at least as generous as the reference scheme.
Any remaining fund can then be used for tax-free cash or extra pension. But because the GMP or RST obligations are prioritised, this often reduces flexibility compared to a modern personal pension.
Advantages
Guaranteed income: Even if your fund value isn’t enough, the scheme must still provide the GMP and meet RST requirements.
Potentially higher transfer values: Sometimes the Cash Equivalent Transfer Value (CETV) receives an uplift as the scheme has to provide a transfer value that meets the expected cost of the GMP/RST promises. This can lead to the transfer value being much more than the fund value.
Disadvantages
Inflexibility: You may have little choice in how your pension is paid, or what type of pension is paid.
Reduced tax-free cash: Because GMP or RST promises must be secured first, there may be little left over for a lump sum.
Mandatory spouse’s benefits: Even if you’re single, the scheme may require a 50% survivor’s pension.
Inability to secure a GMP pension: for some people, they may be unable to get a GMP annuity, as to do so you may have to be a UK resident and they now live overseas.
Your Options
It may be possible to transfer your COMPS into a personal pension, which removes GMP/RST restrictions and provides full access to modern pension freedoms. For example, you could transfer to get more tax free cash, or purchase a level annuity, which can lead to more income in the early stages of retirement.