What is COPE and how does it affect my state pension?

If you have recently checked your state pension forecast, you may see "A COPE estimate". But what is COPE and how does it affect my state pension? COPE stands for Contracted Out Pension Equivalent.

To understand what COPE is and how it affects your state pension, we must go back to 1978, when the Government introduced the additional state pension.

What is COPE?

Allowing people to build an earnings-related income, in addition to their basic state pension. People referred to this as the state earnings-related pension scheme, or SERPS, a key part of understanding COPE and its impact on your pension. This helps answer the question, what is COPE and how does it affect my state pension.

If employed before 2016, your employer may have chosen to contract out. So, either you or your employer paid a reduced rate of national insurance (NI). Therefore, some of your contributions may have gone into funding a personal pension. As a result, the workplace pension provided the additional pension income.

Moreover, the scheme had to guarantee an income equivalent to what SERPS would have paid. Known as a Guaranteed Minimum Pension (GMP). This played a central role in how COPE affects your retirement income.

The old state pension had two parts. If you contracted out, you were building your state pension entitlement. Equally important, your additional pension was growing within a personal pension.

If you did contract out, you may receive a lower state pension than someone who did not. However, your personal pension will provide the extra income. This explains what is COPE and how does it affect my state pension. Aiming to generate an income equivalent to what the additional state pension would have provided.

This figure is your COPE amount. What you receive will depend on the type of pension used to contract out.

How to obtain your COPE figure and understand its impact on your state pension

Your state pension forecast no longer shows the COPE figure. It simply states that you contracted out. To understand what is COPE and how does it affect my state pension, you’ll need to contact your pension provider.

You should contact your pension provider to obtain figures for your contracted-out scheme.

How to claim your COPE pension

If you had contracted out, you would have used a personal pension. Your provider would set this up as a new pension.

Also, your COPE figure may be part of your workplace pension. On the other hand, if you changed jobs a lot or lost details of the schemes, you can claim the money.

If you contact the pension providers, they will tell you if you contracted out, also providing up-to-date figures. Some providers will call it your Guaranteed Minimum Pension (GMP).

Likewise, if you have lost details or have a COPE estimate, it may be from a pension you've forgotten about. HMRC can help if you contact their national insurance helpline.

In addition, you can also request your employment history from HMRC.

COPE paid into a defined contribution plan

You or your employer likely paid contributions into a defined contribution pension. Over time, this plan would build up a pot of money, and at the age of 55, you can decide what to do with this pot.

The income you receive will depend on several factors, including fees and investment performance. This is where what is COPE and how does it affect my state pension starts to vary based on pension type.

How you choose to access the fund can also affect your income.

This is different from a defined benefit pension or final salary. This type of scheme typically pays an income for life.

However, if in any doubt, speak to a regulated advisor if you have a defined contribution pension.

They will be able to explain the different income options you will have.

COPE paid into a defined benefits pension scheme

If you contracted out of a defined benefits scheme, you as well as your employer paid a lower rate of NI.

This means that neither of you paid towards the additional state pension.

However, the scheme must pay a minimum benefit known as the Guaranteed Minimum Pension (GMP).

This replaces the additional state pension you gave up.

Can I increase my state pension if I am contracted out?

If, for large parts of your working life, you contracted out, your state pension may be affected. This raises the question: what is COPE and how does it affect my state pension in terms of qualifying years.

NI contributions are made through working as well as claiming benefits such as child benefits.

You may need additional qualifying years to get the most out of your state pension if you were contracted out.

If you don't qualify for a full state pension, you may have gaps in your national insurance record.

If this is the case, it may be worth paying additional voluntary contributions.

Get expert advice

If you did not contract out, you will receive the state pension plus an earning related top up. If you did contract out, you will receive the state pension.

However, another source, usually a pension provider, will pay the top-up; this is the essence of COPE’s effect on your overall pension entitlement.

The aim is that the top-up will be the equivalent of the state top-up if you had not contracted out.

Let Regulated Advice match you with a financial advisor for expert advice.