COPE - contracted out pension calculation

[morningtoncrescent62]

I know this has been discussed before, but I'm still very confused. I've worked and paid NI for 40 years and aiming to retire in a couple of years if I can (I'm in my early 60s and I've been saving hard with that in mind).

My work/pension contribution history includes 25 years pre-2016 of paying into contracted-out pension schemes. All the advice at the time was to do that. I know that had the 2016 changes not happened, I'd have got the basic state pension but not the state second pension. And I know that somehow that's factored into the calculations for the new state pension, but I can't for the life of me see how to translate that into what I'll actually be paid.

I've done a pension forecast on the govt website, and it says I'll get the full new state pension, but also says that I was contracted out for part of the time (which I knew) which will make a difference. I've combed the website for information on how much of a difference it will make, and how much less I'll actually be paid, but I can't see where I could calculate that, or how to calculate it. The explainer site says: "If you have been contracted-out of the Additional State Pension at any time before 6 April 2016, we have made a deduction when working out your starting amount for the new State Pension. The deduction was applied to both possible starting amounts: the one based on the old rules, and the one based on the new State Pension rules." Fine, I understand, but what I want to know is the actual deduction in numbers. This really makes a difference to me in my financial planning.

Any ideas how I can find out?

You will get the new state pension in full if that's what it says on your forecast. The COPE amount isn't an amount that you re given by the government on top of your state pension. It is an estimate of what you should expect to get from the pension schemes you were paying into. You should get annual updates from any private or workplace pension schemes giving you an indication of what you pension will be

Thanks, rainbowunicorn, but I don't think that's correct. The headline figure in my forecast is the full pension, but it says that some of that will be paid via my workplace pensions because of the contracting out - ie yes, I'll get the full amount, but not all of it will be paid via the state pension. I just don't know how much and I can't see how to find/work it out. I get information about my workplace pensions each year as you've said, so I know year-on-year what those forecasts are. That information doesn't include anything about how much is in lieu of the old state second pension (or starting figure for calculating the new state pension). So I don't know how much I'll actually be paid via the state pension because I don't know how much is being deducted because of the contracted out years.

I may not be explaining this very well, so I'll illustrate with made-up figures.

State pension: £221.20 per week
COPE: £40 per week
Workplace pensions: £110 per week

If my forecast were to give the COPE amount as above, then I'd know to expect £181.20 per week from the state pension, in addition to my workplace pensions, so a total of £291.20 per week.

The difference between the old basic pension and the new state pension is quite substantial and will make a difference to my retirement plans. I hope I'll get more than the old basic pension because of paying the full NI rate since contracting out ended in 2016 (as well as earlier periods of working when I wasn't in contracted-out pension schemes) but I don't know how to work it out.

I think its confusing too
But possibly continuing to work now is knocking offthe contracted years?
However what i

Dont understand is some ni was still being paid pre 2016 so a whole year shouldnt be needed.
Also those becoming sahp might actually be better off re state pension as not cotracted out for the child benefit credits.
I think ive git
3 yrs
Then uni
Then i worked 2003-2012 so contracted out
2012 had a dc so may have full crredits. From.then till now.
So for 9? Years i paid reduced.

No it is correct. I deal with this all the time in my job.The £40 a week is an estimate of what your private / workplace pensions might pay
You will get the full new state pension. Currently £221 a week. There is nothing to work out in respect of your state pension. The COPE refers to the 2nd state pension which is no longer a thing for people reaching retirement age. The COPE amount is what is expected to be paid from whatever pension scheme you were paying into while contracted out.
You will get £221 as it stands now. It will have increased by the time you retire as it does each year.
You will also have whatever private and workplace pensions that you have been paying into over the year, some of which will reflect the COPE amount.

Mine are similar amounts. I expected to get less state pension as I contracted out but mine also shows I get it all. The contracted out one also is about 40 week.

Me too - v confusing all round

Thanks for getting back to me again, rainbowunicorn. I get that second state pension is no longer a thing, but the estimate says that it was taken into account in calculating my 'starting amount' from 2016 when the transfer over happened. If I'm going to get the £221 (today's rate) then that's very good news for me, as I've been assuming there'll be a deduction. But I don't want to count on it, or plan that way, if I'll be getting less.

If the notional £40 is being paid via my workplace pension schemes, does that mean they'll pay me less than they're quoting at the moment? I.e. will the £40 (or part of it) come out of my pension, or will they pay me the full amount as quoted in my annual updates, plus £40 toward my state pension?

I’m no help with this but I have a bit of the same issue. I retired early after cancer and I have 34 years NI contributions. I rang the DWP to look into buying the additional year I was missing. I was told that I was already at the maximum and paying in more at this point wouldn’t actually give me any higher state pension. Think this is something to do with the rules changes in 2016. I was also contracted out when I worked for one of the large retail banks. I have a contracted out amount shown on my state pension forecast. This will be more than covered by the bank pension I will receive but when I check my bank pension the contracted out amount isn’t shown separately, it’s just a total. I have to say I don’t fully understand it all but feel ok now DWP told me I can’t actually get any state pension even if I was to pay any more NI. They said this is why you have to call before buying any more years as for some people it wouldn’t be worth it.

Your workplace pension probably calls it GMP (guaranteed minimum pension) rather than COPE. But they still may not break it down separately. Mine didn't before I retired. Since I retired the 2 parts are being uprated for inflation on different dates and by slightly different % amounts, which just adds to the confusion. But every scheme is slightly different anyway.

You will definitely get the fill.new state pension with no deduction.
To be honest the COPE figure is best ignored. It really only relates to the time you were contracted out and is usually not representative of what is actually I your various pension pots. It is not paid towards your state pension theu are completely seperate things. I would go by the figures on your pension statements that you should get annually for each pension you have. Don't forget that even these will be an estimate based on the assumption that you will buy an annuity. The total pot that you have an be taken in different ways in a defined contribution pension eg drawdown, annuity part lump sum etc. If you are lucky enough to have a defined benefit scheme ad any of your pensions then that would be a guaranteed amount usually rises each year with inflation etc.

You say the DWP told you that you can't actually get any state pension
Is this a typo as with 34 years you definitely will get a state pension

I'm not an expert but from lots of googling around and looking at the HRMC website I agree with rainbow (who does seem to be an expert).
In fact, if I go on the govt website today, the cope figure is now not shown whereas it was before.
My understanding is that if you were contracted out the starting point for calculating the state pension going forward would have been reduced to take into account. However by making contributions for longer than the standard 35 years you can in effect make up for that loss.

Theres some examples here:

Contracted out of the Additional State Pension: How contracting out affects your amount - GOV.UK (www.gov.uk)

This is what happened to me. I was contracted out for a period but now seem to have access to the full state pension when I retire, but it took 37 years of contributions rather than 35.

I have to say its worked out pretty well for me, I get the full state pension plus a decent amount in my contacted out private pension.

EDIT: Hers a newspaper article from some time ago which also seems to confirm this
How is my state pension affected by being contracted out? | This is Money

I also deal with this in my work @rainbowunicorn and I really wish the COPE figure was not included in these SP forecasts as they just confuse everyone.

Yep. I have spent far too many hours of my life explaining this. There is no need fir them to mention it.

Yes must have been a typo. DWP said there was no point me paying in any more in to buy one additional year of NI contributions. Apparently with 34 years I wouldn’t get any higher pension if I paid one additional year NI. I am at the maximum I can achieve. Thanks.

I was in a similar position @morningtoncrescent62
I retired from my career in 2017 and took my private pension.
At that time the .gov website told me that I wasn’t entitled to the full state pension due to being opted out, however it did say that I would qualify with a further 8 years contributions. It mentioned the COPE figure.
I have continued working since 2017 in another role and the website now shows that I am entitled to the full pension. There is no mention of the COPE figure.
I now have 42 years of full National Insurance contributions so I’ve obviously made up for my opted out years

I thought that but just wanted to check.

yes Thanks. I think I’d have been a bit devastated to get no state pension after 34 years of contributions😂. I’ve reread my original post and it should have read DWP said I can’t get any MORE state pension with an additional year of contributions - missed out “more” which does make it read as if I was told I would get nothing!

No one chose to pay contracted out NI, it was a decision your employer made. The idea was you paid slightly less NI because you were paying into your employers pension scheme. The employers pension scheme had to pay at least what you would have got from the second state pension.

In 2016 the state pension rules changed and everyone started paying full NI from 1 April 2016. For everyone they worked out what you would have got under the old scheme as at 31 March 2016 that became your starting rate for the new state pension. As part of this they stated the minimum your works pension must pay you (COPE).

@morningtoncrescent62 in your case you will get the full state pension and your full works pension, which is more than the minimum £40 they must pay. Forget about the £40 it’s not relevant to what you will get.

Thanks, everyone who's replied. I can't say I completely understand, but it seems that for complicated reasons I'll be getting the full state pension, which is better than I thought, so I'm happy with that!

@Harassedevictee Some people did choose to contract out. It wasn't always through an employer. There are many "appropriate personal pension schemes" hanging around and many people have forgotten about them.

@saveforthat thank you for clarifying.

I still think the vast majority of those contracted out were unaware and just joined their employers pension scheme.