How will my state pension be affected by having contracted out?

10 April 2018


I was contracted out of some payments towards my state pension between 2001 and 2016. According to the HMRC website, my ‘contracted out pension equivalent’ (COPE) value is about £54 a week and my predicted pension is about £165 a week with 39 qualifying years. As my pension provider doesn’t provide an annuity pension, how will I get this value back if I have to use a pension drawdown scheme? I also don’t understand the COPE value.

DG/Great Notley


Under the old state pension system, it was possible for a pension scheme to be “contracted out” of the state second pension (previously known as SERPS). In exchange for you and the employer paying lower national insurance contributions (NICs), the pension scheme was required to provide benefits that met a minimum standard.

The COPE is an indicative figure of the actual amount of income provided by your pension scheme in respect of the contracted-out element. From the information that you have provided, it appears that your pension scheme is a defined contribution scheme, in which you have a pension pot. The retirement income provided by your pot when you come to retire will depend on a variety of factors, such as investment returns in the pot up to retirement, charges made by the pension provider and how you decide to draw the benefits.

The options for drawing your pension benefits include buying an annuity, where the income will be guaranteed, drawing the income directly from the pension pot or a combination of both.

There is no longer a requirement for providers to ‘ring-fence’ the portion of your pension pot derived from contracting out rebates, so you will not know if it is equal to the COPE deduction. This all means it is impossible to work out how your eventual pension income will have been affected by your COPE.

As you have paid national insurance for longer than the required 35 years, your predicted state pension amount is £165 before the COPE deduction, which is greater than the standard amount of £159.55 a week (in 2017-2018).

If you have not reached your state pension age and are still  working, the starting amount of state pension before the COPE deduction will continue to increase, up to the predicted amount of £165 a week. So contracting out won’t actually leave you any worse off than the average pensioner in state pension terms.  

Michelle Cracknell is chief executive of the Pensions Advisory Service

Find out more about the Moneywise Experts