COPE - Contracted Out Pension Scheme?
Discussion
Can someone please explain this one as I attempt to get my affairs in order before I take early retirement.
I've just registered onto the HRMC site via the Government Gateway to see what HMRC have me down for. When I look at the 'state pension' section I'm told that I will get the state pension in 2032 forecast @c£160pw but according to my NI contributions so far I will get c£130pw.
I thought you now need 35yrs full NI contributions for full state pension? Looking at my NI record I have paid +35yrs the full amount so what gives?
In addition I'm told I've contracted out of 'part of the state pension scheme'. I don't remember contracting out through SERPS (as it was) and whilst I have an employee pension and a small FSAVC this doesn't sound right. Especially when they tell me my COPE estimate will be c£80pw based on what little I'm paying into a FSAVC. If that is the case I'm not bothered about paying what they consider will be extra NI for full benefits as I don't intend working full time after this year.
Can someone explain it to me in simplistic terms what's going on?
I've just registered onto the HRMC site via the Government Gateway to see what HMRC have me down for. When I look at the 'state pension' section I'm told that I will get the state pension in 2032 forecast @c£160pw but according to my NI contributions so far I will get c£130pw.
I thought you now need 35yrs full NI contributions for full state pension? Looking at my NI record I have paid +35yrs the full amount so what gives?
In addition I'm told I've contracted out of 'part of the state pension scheme'. I don't remember contracting out through SERPS (as it was) and whilst I have an employee pension and a small FSAVC this doesn't sound right. Especially when they tell me my COPE estimate will be c£80pw based on what little I'm paying into a FSAVC. If that is the case I'm not bothered about paying what they consider will be extra NI for full benefits as I don't intend working full time after this year.
Can someone explain it to me in simplistic terms what's going on?
Contracting out of SERPS was achieved via an occupational defined benefit or defined contribution pension scheme, or a personal pension.
The occupational defined benefit schemes could contract out from 1978 (when SERPS commenced) and occupational defined contribution and personal pensions from 1989 (I think), Personal Pensions could also backdate to 1987 I seem to remember.
So essentially, are you 100% sure you have never been contracted out in some form?
The occupational defined benefit schemes could contract out from 1978 (when SERPS commenced) and occupational defined contribution and personal pensions from 1989 (I think), Personal Pensions could also backdate to 1987 I seem to remember.
So essentially, are you 100% sure you have never been contracted out in some form?
Armitage.Shanks said:
Definite I've not otherwise I would surely be getting some for of statement from the SERPS provider?
Not necessarily.Defined benefit schemes don't issue annual statements, and you may have moved so a personal pension provider doesn't have the correct address.
Contact HMRC. They should be able to tell you the dates of contracting out and the employer or pension arrangement.
You could also contact the government's free Pension Tracing Service at
https://www.gov.uk/find-pension-contact-details
It's not that good but should tell you where your benefits could be. The whole search can be done online.
Use the address above otherwise beware of scams.
Also you could contact The Pensions Advisory Service (it's a quango in all but name). Best to do so by their free phone line to start with. Their services are also free. They will be able to assist you and leave matters to you or make appropriate investigations on your behalf.
Bear in mind that getting to the bottom of your enquiry with the correct location and responsibility for everything is often amazingly time consuming. I'm on a case at the moment and it has been going on for getting to eighteen months. This is a bit exceptional though.
R.
https://www.gov.uk/find-pension-contact-details
It's not that good but should tell you where your benefits could be. The whole search can be done online.
Use the address above otherwise beware of scams.
Also you could contact The Pensions Advisory Service (it's a quango in all but name). Best to do so by their free phone line to start with. Their services are also free. They will be able to assist you and leave matters to you or make appropriate investigations on your behalf.
Bear in mind that getting to the bottom of your enquiry with the correct location and responsibility for everything is often amazingly time consuming. I'm on a case at the moment and it has been going on for getting to eighteen months. This is a bit exceptional though.
R.
The COPE amount is supposed to represent the Guaranteed Minimum Payment (GMP) of any contracted out pension scheme, occupational or personal. The GMP represents the weekly amount you would've received if you'd stayed contracted in and received SERPS upon retirement, or whatever is was called at the time you contracted out.
SERPS is/was the State Earnings Related Pension Scheme run by the state, not by a private pension provider. It was the state's version of a personal pension and you would automatically pay into it unless you opted to contract out to an occupational/private pension scheme. If you did opt out your National Insurance payments would reduce. This was the incentive the government introduced in the 1980s to encourage you to leave SERPS.
Now the standard state pension and SERPS etc. have been merged into one payment an adjustment has to be made for those of us who paid reduced NI over the years when we contracted out. Otherwise we'd get the same pension as someone who'd paid the full national insurance towards SERPS all their career. This was considered unfair, not surprisingly.
Armitage, from what you've said you contracted out for 25 years to an employer's pension scheme and paid an additional £30 per month in Free Standing Additional Voluntary Contributions (FSAVC). These should have bought you a small pension separate from your employer's scheme. Do you not get a statement each year from the pension provider?
I'm not sure if your FSAVC fund affects the COPE adjustment but your employer's scheme GMP will definitely contribute to the COPE adjustment.
In a simple world of state pensions, if there ever was one, your state pension will be reduced from the maximum of £155 per week by £80 per week giving you £75 per week. You can increase the £75 by working more years or buying additional years up to a maximum of £155.
However, you've been quoted £130 per week. This is because the new scheme looks at what you would get under the new scheme, £75, and what you would have got under the old scheme, £130, and gives you the highest of the two figures. You can increase the £130 to £155 as above under the new scheme figure.
The relevant date for change was April 2015.
SERPS is/was the State Earnings Related Pension Scheme run by the state, not by a private pension provider. It was the state's version of a personal pension and you would automatically pay into it unless you opted to contract out to an occupational/private pension scheme. If you did opt out your National Insurance payments would reduce. This was the incentive the government introduced in the 1980s to encourage you to leave SERPS.
Now the standard state pension and SERPS etc. have been merged into one payment an adjustment has to be made for those of us who paid reduced NI over the years when we contracted out. Otherwise we'd get the same pension as someone who'd paid the full national insurance towards SERPS all their career. This was considered unfair, not surprisingly.
Armitage, from what you've said you contracted out for 25 years to an employer's pension scheme and paid an additional £30 per month in Free Standing Additional Voluntary Contributions (FSAVC). These should have bought you a small pension separate from your employer's scheme. Do you not get a statement each year from the pension provider?
I'm not sure if your FSAVC fund affects the COPE adjustment but your employer's scheme GMP will definitely contribute to the COPE adjustment.
In a simple world of state pensions, if there ever was one, your state pension will be reduced from the maximum of £155 per week by £80 per week giving you £75 per week. You can increase the £75 by working more years or buying additional years up to a maximum of £155.
However, you've been quoted £130 per week. This is because the new scheme looks at what you would get under the new scheme, £75, and what you would have got under the old scheme, £130, and gives you the highest of the two figures. You can increase the £130 to £155 as above under the new scheme figure.
The relevant date for change was April 2015.
Nick - yes I do get annual statements from the FSAVC provider which looks like less than £800/pa. I just don't remember contracting out and can't undertand that if the state pension max is c£160pw why is my projection, based on £130/pw on current NI contributions and the COPE element, taking me above that limit?
I've paid full NI for +35yrs and sometimes doing some additional work where tax and NI has automatically been deducted I've been able to claim this back on the second employment.
I've paid full NI for +35yrs and sometimes doing some additional work where tax and NI has automatically been deducted I've been able to claim this back on the second employment.
Armitage
When you joined your employer's scheme you were given the option to pay contracted out NI rates. If you've still got the original paperwork you'll find the consent statement. I contracted out back in 1988, and whilst I know I did it, I wouldn't be able to tell you the wording I signed.
With regard to your state pension statement, I'm a little confused as to what you've actually been told. Why do you think working/buying additional years can take your pension from the current £130 per week to above £160?
As an example, my pension forecast tells me my expected pension based on 30 years NI payments is £128 per week. But, if I pay another 7 years NI contributions I can get it to £160, but no more.
The £128 is arrived at by first working out my pension based on the new all in one system less my COPE (£70). Therefore, under the new system I'd get £160 less £70 giving £90.
Under the old system I would've received £128. As this is more than £90 I get £128.
The 7 years extra payment generate about £5 per week, therefore adding £35 to the £128 giving £163, but as this is capped at £160. The page telling me I can do another 7 years has a statement in bold saying
£159.55 is the most you can get
and then goes on to say
"You cannot improve your forecast any further, unless you choose to put off claiming."
I should add all the above is ONLY to do with your state pension amount. It has nothing to do any pension you get from an employer or stand alone pension.
When you joined your employer's scheme you were given the option to pay contracted out NI rates. If you've still got the original paperwork you'll find the consent statement. I contracted out back in 1988, and whilst I know I did it, I wouldn't be able to tell you the wording I signed.
With regard to your state pension statement, I'm a little confused as to what you've actually been told. Why do you think working/buying additional years can take your pension from the current £130 per week to above £160?
As an example, my pension forecast tells me my expected pension based on 30 years NI payments is £128 per week. But, if I pay another 7 years NI contributions I can get it to £160, but no more.
The £128 is arrived at by first working out my pension based on the new all in one system less my COPE (£70). Therefore, under the new system I'd get £160 less £70 giving £90.
Under the old system I would've received £128. As this is more than £90 I get £128.
The 7 years extra payment generate about £5 per week, therefore adding £35 to the £128 giving £163, but as this is capped at £160. The page telling me I can do another 7 years has a statement in bold saying
£159.55 is the most you can get
and then goes on to say
"You cannot improve your forecast any further, unless you choose to put off claiming."
I should add all the above is ONLY to do with your state pension amount. It has nothing to do any pension you get from an employer or stand alone pension.
Edited by uknick on Sunday 22 October 09:38
Nick
Thanks for clearing that up however I can't understand that if I have paid 35yrs full NI contributions why my record is not showing my entitlement to a full state pension when I reach it and that I need to contribute another 7yrs?
Also do you mean that whatever the State give me they will reduce the COPE element - in this case £78? As it also says this will not affect my state pension forecast. If that is the case will my employer pay the COPE element when I take their pension or when I reach State Retirement Age?
Thanks for clearing that up however I can't understand that if I have paid 35yrs full NI contributions why my record is not showing my entitlement to a full state pension when I reach it and that I need to contribute another 7yrs?
Also do you mean that whatever the State give me they will reduce the COPE element - in this case £78? As it also says this will not affect my state pension forecast. If that is the case will my employer pay the COPE element when I take their pension or when I reach State Retirement Age?
You don't get the £160 automatically because for 25 years you paid a reduced NI contribution, about 2% if I recall correctly. So did your employer come to think of it. It wouldn't be fair to those who paid the full stamp for all their employment years if you got the same state pension.
Just to reiterate, the new pension system says you need 35 years to get the full £160 pension. You've done enough years so your pension starts at 35/35 x £160 giving £160. They then reduce this by the COPE, compare to what you would have got etc., leaving you with a pension of about £130 per week from the state.
By reducing your state pension by the COPE amount the rules assume you'll receive this from your employer's pension scheme when you start to receive their pension. Plus any other scheme you might have paid into.
To give my numbers as an example,
My employer's pension starts to pay at 60, 7 years before the state pension for me.
I currently receive about £350 per week from my employer's pension scheme, which includes the COPE element of £70. BTW, any contracted out pension scheme must pay at least the COPE element.
When I reach 67 I'll start to get the state pension of £128 per week meaning my total weekly income will be about £478 at today's prices.
Contrary to a comment made earlier, my defined benefits scheme told me each year how much my pension was worth, as did my brother's.
I don't know how old you are and when you intend to retire but I strongly suggest you get hold of your employer's scheme and find out how much they intend to pay.
Just to reiterate, the new pension system says you need 35 years to get the full £160 pension. You've done enough years so your pension starts at 35/35 x £160 giving £160. They then reduce this by the COPE, compare to what you would have got etc., leaving you with a pension of about £130 per week from the state.
By reducing your state pension by the COPE amount the rules assume you'll receive this from your employer's pension scheme when you start to receive their pension. Plus any other scheme you might have paid into.
To give my numbers as an example,
My employer's pension starts to pay at 60, 7 years before the state pension for me.
I currently receive about £350 per week from my employer's pension scheme, which includes the COPE element of £70. BTW, any contracted out pension scheme must pay at least the COPE element.
When I reach 67 I'll start to get the state pension of £128 per week meaning my total weekly income will be about £478 at today's prices.
Contrary to a comment made earlier, my defined benefits scheme told me each year how much my pension was worth, as did my brother's.
I don't know how old you are and when you intend to retire but I strongly suggest you get hold of your employer's scheme and find out how much they intend to pay.
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