On point paper:
Why is money being deducted from my state pension? The mysteries of CODs, COPEs and Contracting Out explained
16 February 2022
One element of the state pension system which probably causes more confusion than any other is the role of ‘contracting out’. Millions of people spent one year or more of their working life as a member of a ‘contracted out’ pension scheme, either organised through their workplace or taken out personally. In many cases, a period of ‘contracting out’ will affect the state pension which they finally receive. But the way in which this works, and the amounts deducted as part of the state pension calculation are not well understood.
The aim of this paper is to help de-mystify the jargon which surrounds the state pension calculation.
Key areas covered include:
- What exactly is ‘contracting out’?
- How did it differ between different types of pension arrangement?
- How does being contracted out during your work life affect your state pension:
- at retirement?
- through retirement?
- How did the introduction of the ‘State Second Pension’ in 2002 affect things?
- How did the move to the new state pension in 2016 affect things?
- If my pension statement from the government or my pension scheme refers to a GMP or a COD or COPE, what do these things mean?
- How does contracting out affect the amount of state pension I may inherit if my spouse or civil partner dies?