A new day has dawned
This is the first thing I thought as I work up at 4.30 am today;
“At last and at least I understand my state pension statement” –
Famous first words.
At 5.15 am this morning I wrote a blog satisfying myself that at last I understood my state pension entitlement which kicks in around 52 months time!
At around 8 am I published to an expectant world -and at around 8.30 am , Steve Webb posted this (and I replied)
I can’t believe that I am going to get the full state pension, my GMP from my company pension and a pot of money from contracting out through a personal pension. But it looks like I will! I’m going to get £260 pw when you count back in my COD/COPE! That’s assuming Sir Steve, (who is fast becoming my new best friend), tells me so. Here’s the latest from the DWP
You will notice that I am getting £221.20 and all that stuff about contracting out is irrelevant!
Stancombe
My personal journey to an understanding of my state pension statement has been as tortuous as the Buddha’s to self-enlightenment or Damian Stancombe in counting down to retirement. Maintaining enlightenment will be easier for me but getting to a point where I knew what I was and wasn’t getting paid from the State, my personal pension and my occupational pension has been an odyssey.
I use myself as a case study, so others may follow. I appreciate that wiser folk – such as Steve Webb, Andy Young and David Robbins will not be surprised at the result of my research but I suggest I may be one of the first to have ever published their personal account .
Mine is relatively simple, I had only one contracted out employment, only used one personal pension to receive one national insurance rebates. I had some SERPS entitlement which has carried over to the single state pension, my contracting out deduction is modest and properly stated, I can check my years qualifying for credits going back to 1977 (when I turned 16). Anyone who doesn’t think the state pension has legs, should contemplate that final statement. If I do live to 89, my state pension journey will 73 years long!
Let’s start by looking at my theoretical entitlement to state pension. This has been recently updated to take into account the hefty improvement from the triple lock last year.
I will not get £221.2o per week from the state as a pension, I will actually get that amount (not) less £38.87pw. The Cope is not paid (lucky me) on top of my state pension but from it.
The amount of additional State Pension you would have been paid if you had not been contracted out is known as the Contracted Out Pension Equivalent (COPE).
Contracted Out Pension Equivalent (COPE)
Your COPE estimate is £38.87 a week
So I will actually get a weekly payment (though paid monthly) of £182.33 £260.07 (£790 pm – + £172pm) £38.87 pw. more than the headline figure (the dashboard figure).
The £38.87 per week will be paid in part by on top of my my occupational pension scheme in two parts.
I have had this message from my pension administrators (Railpen)
According to our records your GMP due to be paid under the Scheme from age 65 is £410.28 a year.
This is £7.89 pw – and for some arcane reason I get GMP from 65 not 67 (and there is probably some adjustment to my company pension coming my way for GMP equalisation and maybe for the bridging between my 65th and 67th birthday (I have this fun confusion to come).
Previous confusion resolved
This is where I got confused because I divided £410 by twelve and got a figure adjacent to £38.87 but there are of course 52 weeks not 12 in a year. A rooky error but one that I made (easily). Because of this month/week error, I thought that my GMP was my COD – it turned out to be less than a quarter of my contracting out deduction (COPE)
This takes care of about £8 pw of the COPE – (the Contracting out Deduction). What about the other £30?
Well this is supposed to be paid to me from my personal pension (which was with NPI and is now part of my one big pot with L&G). Thankfully I did my combining before the new red and yellow flag regime which would have had me up and down to MaPS faster than a tart’s knickers.
The £30 pw/ £1500 pa (odd) of pension I am not getting because it’s coming from my personal pension. I don’t know I got a good deal on this, but I suspect that I got a very good deal and I suspect that the £8 a week I’m losing gaining – on top of my state pension to get more occupational pension is also a good deal.
I am now amending my blog with the bits in red!
Good deal? It’s an absolute steal – I’ve got £38.87 pw for the rest of my life from 67 absolutely free – my only regret is that I missed a bit of SERPS contracting out – out!
It has to be said, only about 10% of personal pension pots get converted to lifetime pensions (annuities). 90% of people will not get a pension from contracting out of SERPS/S2P via a personal pensions – that’s freedom!
And how much you got from the steal good deal is the luck of the draw. Investing your rebates in Japanese equities since 1988 would make you a relative loser, investing in US equities – quite the opposite. Who could have known that back in the day?
But in general, it looks like people who contracted out and who can earn or buy back additional years to make up their full state pension credits (35 post 2016) are quids in. There are winners and losers from the single state pension launched in 2016, I am a winner, John Greenwood (my age and someone who stayed “in”- a loser). I owe you a drink John.
The amounts of money involved, considering my life expectancy – (89 according to the First Actuarial death calculator – thanks Mark Rowlinson) are impressive. Assuming the 20x multiple that we used for LTA purposes – my COD/COPE is worth £40,425. I’ll spell that out Forty Thousand , four hundred and twenty five pounds – for not being contracted in!
My journey to enlightenment has been long but seems happily resolved.
But I wonder how many people are able to take my path to enlightenment. While I am glad that I could pull together all this shit, will many others?
It is a great pleasure to have Sir Steve Webb (tug forelock) as my benefits adviser, I don’t think many will have that privilege!
How many people will ever know whether the decision they took to contract out via a personal pension worked out? How many will care?
How many people understand what a GMP is , let alone if it is fair and equalised – I still don’t!
We have pension dashboards coming up, and the state pension will be one of the items that will appear on them, alongside our personal pots and private pensions.
A new day has dawned – time for a drink?
Compare with this report
https://assets.publishing.service.gov.uk/media/660407b1e8c442001122032b/national-living-wage-and-national-minimum-wage-low-pay-commission-remit-2024.pdf
With just £500,000 in your pot(s) in todays terms you could be looking at having a living wage in retirement.
My experience of retirement is that the experiences available need more buying power not less. Pensions are clearly only part of the beyond work solution.
Sorry Henry but you’re going to be pleased that your journey is not complete. You will get £221.20pw as COPE IS NOT DEDUCTED FROM YOUR STATE PENSION.
Thanks you for sharing your experience, Henry.
I reached State Pension Age shortly after April 2016. So needless to say I had a great personal interest in how my State Pension was calculated and how it would be affected by the introduction of the New State Pension. My history was more complicated as although I had a full NI earnings history since age 21, I had periods of both contracted in and contracted out employment in DB and DC pension schemes and personal pensions during different employment periods since 1978.
With my background in pension administration and as an voluntary advisor with OPAS/TPAS and as I had also retained copies of my P60s and pension benefit statements I thought I should be able to work out what my State Pension would be. After three full days working on spreadsheets, referring frequently to DWP information online and in booklet form (particularly poor at that time), I gave up! I concluded that I was entitled to a pension based on the traditional State Pension plus SERPS and S2P which looked broadly correct and that there should be a COPE deduction. However there was no way I could reproduce the COPE deduction calculation however much I worked with the revaluation tables.
When I was a scheme administrator and OPAS/TPAS advisor, one of the ,most frequent questions/complaints was “Why is my pension being reduced by a contracted-out deduction and then why is the contracted-out deduction different from my GMP?” I could only give a broad explanation of the different revaluation bases. If I was dealing with the question today I might be tempted to draw on your assessment of whether you got a good deal in respect of your personal and occupational pensions, but then at that time we were really only dealing with occupational pensions.
One remaining question I have: Pension Schemes are incurring great expense in equalising GMPs, is not the COPE calculation also gender specific and has it been or will it be equalised both for new commencements and for existing pensioners?
Whilst the COD is deducted from the state pension, the estimate of COPE is not deducted from the estimate of your state pension amount contained on the state pension forecast. COPE is an estimate only of the pension you might get elsewhere in addition to the State Pension amount you see at the top of your state pension forecast.
Yes – sorry I was working out my COD deduction. I though it had just been renamed COPE.
However, if gaps in a National Insurance record do affect the amount of new State Pension they can get, they may be able to pay voluntary National Insurance contributions to fill these gaps.
Voluntary National Insurance contributions can help an individual to protect their National Insurance record if they are not building their National Insurance record through working or receiving credits.
An individual can usually pay voluntary contributions for the past six years. The deadline is 5 April each year. For example, they would have until 5 April 2030 to make up for gaps for the tax year 2023/24.
However, if an individual wants to make voluntary contributions for the tax years 2016/17 and/or 2017/18, the deadline has been extended. They have until 5 April 2025 to pay, and the rates have been fixed at those for the 2022/23 tax year. The rates are: £3.15 a week for Class 2; and £15.85 a week for Class 3.
HMRC have also extended the usual deadlines for making voluntary National Insurance contributions for the tax years from 2006/07 to 2015/16, for men born after 5 April 1951 or women born after 5 April 1953, if they are eligible. The individual will have until 5 April 2025 to make the contributions. And, again, the rates have been fixed at those for the 2022/23 tax year, at: £3.15 a week for Class 2; and £15.85 a week for Class 3.
Given how busy Steve Webb is, please direct people who have not yet reached state pension age and who want to understand what their state pension forecast means to the Moneyhelper Pension helpline on 08000113797 on weekdays between 9am and 5pm. We are not there to CALCULATE why their figures are what they are, but we can explain the forecast in plain English and help them understand the things to think about when evaluating whether to make Voluntary National Insurance Contributions.
Henry you won’t get £260 from your state pension. You will get £221.30. The E in COPE stands for estimate, so it is just that. They estimate that as you contracted out in the past, the scheme you used to contract out from the state pension is ESTIMATED to include as part of the pension you will receive a COP(E) of approximately £38.87. This will almost certainly not be what you actually receive. But that scheme will in part have been funded partially or fully by part of your National Insurance contributions.
My wife had a few months to go before she was entitled to her State Pension and she was showing a shortfall in her record that meant she would not receive the full amount. However miraculously she received a communication shortly before the payment of the State Pension was due to begin that stated she would get the full amount and she did receive the full amount. How can anyone track what is going on when the records change at such late notice?
So I decided to wait, but my record didn’t change so I have now applied for a quote using additional voluntary contributions, but the dept dealing with this is running 8 weeks behind!
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The confirmed amount is always in doubt until it is actually paid once you reach pensionable age. Thankfully all amounts correct so one can relax until a new tax year and an increased amount that is not communicated plus when it will actually from (SP is paid 4 weeks in arrears). A payment could be 3 weeks at old and 1 week at new but you have to figure it out!
Those completing self assessment – more this year due to frozen allowances – now have fun calculating the exact amount for SP. If only DWP could send a P60 to taxpayers as they do to HMRC it would be simple! The internet is littered with conflicting threads on this subject.
Thanks Pete, really helpful