COPE

[Wowbagger]

It stands for "Contracted Out Pension Equivalent".

I get my state pension on 6th March 2020. Every time I've gone onto the government's website to see how things are doing, I have been assured that I have 35 full years' NI contributions, and 12 part-years' NI contributions. With that in mind, the government's own website has forecast that I am due a full pension of £168ish a week.

Yesterday I checked again and the forecast had dropped to £129.98  week. I have just phoned up to enquire why there is this significant drop in the forecast. I have been told that, from 1978 to 2016, I was (partially) "contracted out" of the state scheme. I had no idea that I was, and the government's own website states that "you may not have known that you were contracted out".

My employer's pension is the Civil Service scheme, which is non-contributory. Basically, there is no "pension pot" as there is if you decide to bung some money at Legal & General or someone in order to build up a pension. Since it's non-vontributory, I find it very difficult to get my head round me "contracting out" of something for which I was not actually contributing to.

I would be interested if anyone else has come across this "COPE" - which I had never heard of until yesterday.

[Genosse Brymbo]

My state pension forecast has a COPE component, whose effect don't understand.  The forecast appears to be very high to me, 188.75 per week, and I'm unsure how COPE affects this.  I've just done the following, and you may be able to do the same.  It might throw some light onto the matter:

Navigate to https://www.gov.uk/check-state-pension and then sign-in using one of several authentication methods presented.  Then you should see a page giving the pension forecast (in very BIG digits!).  Below that I have links to "View your National Insurance record", and (within a section headed "You’ve been in a contracted-out pension scheme") a link titled "you were contracted out of part of the State Pension".  You might think that this takes you to a general information page.  However, the destination page contains general information, but also has a pensioner-specific element - the "COPE estimate".  Mine is 55.02 per week.

The accompanying blurb on the COPE page says "This will not affect your State Pension forecast. The COPE amount is paid as part of your other pension schemes, not by the government."  However, the word "estimate" is a cause for concern, as I suspect this could be revised between now and my pension date in three years time.  Could such a revision be what has happened to bring your pension estimate down?  Or, is this the first time COPE has been mentioned with regard to you pension estimate?

I might head off to the MSE pensions forum to see whether there are any explanations of COPE and this unsettling "COPE estimate".

[Wowbagger]

When are you due to get your state pension?

I have done all the things you suggest, looking at my NI payment record (oddly, mine starts in 1972 when I was at teachers' training college and on a grant and definitely not in employment. They have credited me for 3 years here) and my pensions forecast.

My COPE element is £53.11. Prior to me sending my letter back saying, yes please, I did want my pension to start on 6/3/2020, my ESTIMATE (again, I was suspicious of that word) was for a full state pension of £168 a week.

The bit I haven't got my head around is that the Civil Service scheme is non-contributory. My understanding of what I am being told is that when HMCE was my employer they reduced the amount of NI they were paying on my behalf and were directing that payment into the Principe Civil Service scheme (probably no longer called PCSPS). But - since the CS scheme is non-contributory, ie there is no "pensions pot" but they just take my pension out of "current" taxation, my view is that they had no right to reduce my NI because that money wasn't going anywhere. I do have my last full month's payslip which shows that I paid £140 NI in May 1995. That was out of a total gross pay of £1989.

[Genosse Brymbo]

Sorry for the tardy response; I've been delivering presents to the rellies in Brexit Central.

I'm due to get my state pension on my 66th birthday, 4 years from today.  TBH my interest in your original post is the drop of approx. £38 per week in the forecast on the website.  I don't see how the Inland Revenue expect one to be able to plan for retirement with such a large fluctuation in the estimate.

I kept screenshots of my previous forecasts.  On 10.04.2016 it was 174.56 and there is no mention of COPE or link to a COPE page.  On 10.12.2017 it was 178.66 and the page looks similar to today, with a COPE page link.  I am still working, part-time, and intend to continue until state retirement age or a little before.

I understand the COPE adjustment in principle - by not contributing fully to the state scheme but to a another scheme one is not entitled to the full state amount.  The other scheme is intended to make up (or exceed) the difference.  It's the fine detail of the reduction in state pension entitlement and its presentation on the website which I don't understand.

[Wowbagger]

I phoned the Civil Service Pension Scheme bods on Monday. They are due to send me full written details of all my data within 10 working days.

I still detect sleight of hand here, although my case is fairly complex.

I was in teaching for 11 years and paid into their "pension scheme". In reality, there isn't one. A certain amount extra was deducted from my salary, but there is no pensions pot. Teachers' pensions are paid directly from current money raised through taxation. I transferred my teacher's pension into the Civil Service scheme. I'm sure I no longer have the relevant paperwork - that was in 1986 or 1987.

My concern is that the CS scheme is paid as 1/80th of your salary for each year of working. It's non-contributory. That too is paid out of "current money" - there is no pensions pot. I have 19 years and 306 days reckonable service (I think there or thereabouts). If it's non-contributory, then how is my "contribution" being diverted into the state pension?

But as you say, the website gives you an estimate which just before you are about to claim, is suddenly reduced by almost £40. It stinks.

[andrewc]

I think everyone gets hit by this to some extent.  I’ll have to look up the figures for mine.


One thing they’ve told us at pension seminars is that if you don’t _need_ to take your state pension at 65 it can be worthwhile deferring it for a couple of years as you then get an increased amount when you do claim it.


Edit:
If you reach State Pension age on or after 6 April 2016. Your State Pension will increase every week you defer, as long as you defer for at least 9 weeks.Your State Pension increases by the equivalent of 1% for every 9 weeks you defer. This works out as just under 5.8% for every 52 weeks. The extra amount is paid with your regular State Pension payment.

[Wowbagger]

I think that would rarely be worth doing. Firstly, you have no way of knowing when you are going to cark it. In addition, if you are not paying income tax but you will have to after claiming your state pension, it seems to me that you will end up paying more tax in the long run than you otherwise would.

We are in the very fortunate position that we can live comfortably without it (we have my civil service pension and Jan's state pension) and between us we pay virtually no tax.I think i will be paying almost 20% of my state pension straight back to the government.

[Jasmine]

I think part of your confusion is that you've mashed a load of separate issues together that don't really have any interaction with each other. The other part is that the way that pensions are paid out has changed.

The Civil Service Pensions are not funded, in that money paid out is paid by the treasury, rather than an invested fund. However, that doesn't mean that no one contributes to it. The 'employer' (remember that this could be several different organisations who are eligible for the scheme) pays a significant contribution (it's an average of 20% IIRC), and the member (now) pays between 4.6% and 8% of pensionable earnings (depending on your pay band). Based on your post I'm guessing that you left the civil service before member contributions were introduced*. However, the member contribution is nothing to do with the COPE.

The COPE situation arises because prior to 2016, pensioners received a state pension comprising 2 parts - the basic state pension and the state second pension. Having 35 years of NI contributions allowed you to receive full basic state pension. The second state pension was determined by a load of factors, including earnings and the specific NI rate that was paid. The term "contracting out" actually means that you have opted out of the second state pension by paying a lower rate of NI (and your employer also paying a lower rate of NI). This was only allowed if you were in a pension scheme of some sort, as the 'private' pension scheme would make up the shortfall.

To summarise, the way that your pension is funded or contributed to has nothing to do with the "contracting out". The fact that you have a 'private' pension has allowed you to 'opt out' of the additional state pension - or rather, it has allowed your employer to opt you out. The Contracted Out Pension Equivalent (COPE) value is the difference between the basic pension and the extra state pension; this is paid out as part of your 'private' pension. It's confusing because your pension statement won't list this as a separate amount.

This is all made more confusing because the way the state pension is paid changed in 2016. The new state pension is a combination of the basic and top up elements of the old pension. If you have full NIC years, the starting amount is £168 p/w. However, this starting amount is both the basic and top up of the old pension. Therefore, if you weren't eligible for that top up amount, it's taken off your starting amount. Under the old system, you wouldn't have gained the top up; under the new system you've lost the top up value from the estimated amount. It works out being the same thing, but it appears that something is being taken away from you.


TLDR - you aren't eligible for that money to be paid in state pension because you paid a lower rate of NI than people who have no other form of pension

* As a side note, Civil Service Pensions are also no longer final salary, and all active members were ported onto a defined benefit scheme in 2015, unless they were close to retirement.

[Wowbagger]

Thanks for that: I had assumed quite a bit of that. But given that my contributions were only "contracted out" for less than 20 of my 35 qualifying years (I taught from 1975 to 1986 and then spent 9 years in the civil service. I have been self-employed and paying NI since 1995), I would have expected to get about 40% of the extra rather than just a few pence.

[Jasmine]

Hmm, that's a good point. It's logical that your NI contributions should have popped up to the higher rate, once you stopped being with that employer. Unless somehow once you've opted out you stay opted out, unless you specifically opt back in. That would be quite stupid though, as you couldn't rely on the private 'top up' from your former employer once you were no longer with them.

It might be some weird "feature" of paying the self employed NI rate.

[phil d]

As my wife and I approached state pension age we found the on-line service consistently gave inaccurate forecasts of pension eligibility. It was only resolved when we requested a written statement, which listed all our contributions, listed the contracted out periods (most of Mrs D's career and just a few years of mine) and also a thing called "graduated pension" which I think is now gone.

[Wowbagger]

Hmm, that's a good point. It's logical that your NI contributions should have popped up to the higher rate, once you stopped being with that employer. Unless somehow once you've opted out you stay opted out, unless you specifically opt back in. That would be quite stupid though, as you couldn't rely on the private 'top up' from your former employer once you were no longer with them.

It might be some weird "feature" of paying the self employed NI rate.

I can't imagine that the notional contributions allocated to child benefit and carer's allowance recipients will be any more than the bare minimum payable, yet my wife, whose paid employment from 1976 to the present day constitutes about 30 months, is on the full whack as a result of CB and CA.

[phil d]

And this is why it is vital that you* register for CB, even if the income level of your partner means you don't get it. At least you get the notional credit for NI contributions to protect your pension.

* not you, obv WB. This is directed at the young parents who might be reading this.

[Wowbagger]

I have spent time this morning pursuing this.

Before Christmas I spoke to someone at at the Civil Service scheme to try to find out how many years were contracted out, and how much I paid. They didn't answer that question, but they did conduct a reappraisal of my CS pension and discovered that they have been underpaying me for the past 14 years (I was granted my pension early on health grounds) so that was a nice surprise.

I spoke to someone at the DWP this morning and they confirmed the same figure as before but were unable to tell me about my contracted out years as that's a function of HMRC. I phoned them and was put through to someone who specialises in that sort of thing and they told me that my contracting-out years were from 6/6/1978 (when contracting-out started) to 4/4/1996 (I left the Civil Service in June 1996).

I wasn't able to get an answer about the fact that it seemed that my pension was being reduced as though all 35 years had been contracted out rather than just 18 of them. However, HMRC are going to carry out an assessment and will write to me in about 4 weeks with their answer. I've contributed very little in recent years because I've had an exception certificate due to low earnings. One thing I did do was to nominate myself as Phyllis's carer from July 2018 to her death a year later. Jan had been her named carer up to that point and was in receipt of carer's allowance but that ceased when Jan reached pensionable age. I couldn't claim CA because my CS pension was more than the meagre income you have to declare to claim, but I was entitled to "Carer's Credit". My NI was therefore paid from July 2018 until October 2019.

It seems that I can buy back 3 years' worth of NI contributions to increase my pension and this may well be worth doing. It will take about 150 weeks' of the extra I will receive to cover the cost of buying back those years. I'm hoping to survive another 3 years or more, so I'll probably do that when I've got all the information at my fingertips.

[Greenbank]

And this is why it is vital that you* register for CB, even if the income level of your partner means you don't get it. At least you get the notional credit for NI contributions to protect your pension.

That's a good point, I was considering canceling our CB as I earn too much to receive any of it (#fwp) and end up having to pay it all back via a SA (Self Assessment) tax return. However:-
* The associated NI contributions as noted above (for Mrs GB who has had some gaps in her earnings since MiniGB was born)
* You can still invest the money over the course of the year and earn some interest on it before having to hand it back (and you get a bonus 9 months from April until the Jan 31st deadline for SA payment)
* By forcing me to do the SA each year I'm usually able to claim back some money due to Gift Aid uplift. If I didn't have to do the SA tax return I'd probably not bother doing it and I'd be foregoing the GA uplift refund.

(In reality we invest the money every month for MiniGB and then every January I pay my tax bill out of my own pocket - or what would have become joint funds.)

[Adam]

Self employed aren't entitled to the contracted out portion.  For the period of self employment you build up an entitlement to what was (back then) the original basic old age pension.

[Wowbagger]

Self employed aren't entitled to the contracted out portion.  For the period of self employment you build up an entitlement to what was (back then) the original basic old age pension.

As I mentioned upthread, my dear wife has the full whack of £168 based on 35 years of being in receipt of child benefit and carer's allowance. It seems somewhat surprising that that entitlement does not extend to people actually paying money over to the government.

[Adam]

As I mentioned upthread, my dear wife has the full whack of £168 based on 35 years of being in receipt of child benefit and carer's allowance. It seems somewhat surprising that that entitlement does not extend to people actually paying money over to the government.

True!

As she's got full credit for those years with child benefit and as a carer, and has never been contracted out, she's therefore entitled to get the full amount of the new State pension. 

Their argument would be that you had the benefit of lower NI contributions, therefore get a lower pension.

[Wowbagger]

But as I said, my contracting out lasted only 18 years. The other 17 years were either pre-1978 (when contracting out became a thing - 5 or 6 years of that) and my self-employed contributions.

[Adam]

Prior to leaving the industry in 2018, I haven't seen any data showing exactly how they were working out the calculations for the deduction, only that it wasn't at all clear exactly what they were going to do, and we didn't have any confidence in the accuracy of the figures!

So all you can do is insist on a complete breakdown of how they've arrived at the figures.

[Wowbagger]

Which pension scheme was that?

[FifeingEejit]

hrm... that sounds like something you've set up yourself at some point due to the "Personal Pension Plan" component rather than one of the former Public Sector pensions being sold off to SW.

SERPs is one of the previous names of there former Additional State Pension (also previously known as the "Second State Pension") it's a bit like Prince really...

[MikeFromLFE]

hrm... that sounds like something you've set up yourself at some point due to the "Personal Pension Plan" component rather than one of the former Public Sector pensions being sold off to SW.

SERPs is one of the previous names of there former Additional State Pension (also previously known as the "Second State Pension") it's a bit like Prince really...

I've a vague recollection of there being an NHS option for additional pensions with two providers, one of which was Scottish Widows (I think the other might have been Equitable Life - which is where I went).
The details are hazy but I'll see if I can find the paperwork.

[Wowbagger]

I remember reading an Observer article, probably in the 1970s so there's no chance of it being on the internet, about teachers' pensions. I was definitely still in teaching and I think it was around the time of the Clegg award. I just tried googling that and ended up with a load of picture of Nick Clegg, so that was no help. The Clegg award of circa 1981 was designed to bring teachers close to where they were in 1974 after the Houghton award, which is mentioned in this Graun article from 2001. https://www.theguardian.com/news/2001/feb/03/leadersandreply.mainsection

Anyway, back to the point I was about to make. The said article about teachers' pensions stated, correctly, that the money was not being invested in a "pensions pot" but was simply being clawed back, and teachers' pensions were paid from general taxation according to a formula of 1/80th of your salary for each year that you taught. The article said that this was very unjust as those pension schemes that actually invested the money in the stock market were racing way ahead of the rate of inflation at the time, and therefore well ahead of teachers' pay rises. The Civil Service scheme was similar, except that was non-contributory. When I switched from one to the other, there was no pensions pot there either, but a sum of money did change hands. I may still have the paperwork somewhere, but IIRC about £10k was transferred from the teachers' to the CS scheme in 1986, when I changed careers.

Given that the article I'm referring to singled out teachers' pensions, and not public sector pensions in general, would imply that other bits of the public sector did indeed have "pension pots". You may recall not many years ago when public sector pensions and their recipients were under attack from the gutter press because private sector pensions did not have the "gold plated" pensions that civil servants and teachers had.

There are two words which sum up the shafting of private pensions schemes: Margaret Thatcher. It was under her influence that the good old endowments mortgages also became useless. I'm guessing that people who paid into an NHS pension ended up being royally screwed by Thatcher and her successors. Gordon Brown also did a lot of damage when he gave employers "pensions holidays".

I would be very interested to find out whether your contacting out was something you chose to do or whether it happened by default.

[FifeingEejit]

Interesting, the current NHS Scotland pensions are still unfunded and are 1/54th or 1/80th of salary depending on whether it's the 1995 or 2005 scheme.
There is presumably also people on what ever went before the 1995 scheme.

There is of course the lieklyhood that pre-1999 the Secretary of State for Scotland did things differently from what the DfH and its predecessors did.