Will I Get Full State Pension if I Contracted Out of SERPS?

Many people who worked in the UK before 2016 are uncertain about their State Pension entitlement because of contracting out of SERPS or the State Second Pension (S2P).

Contracting out allowed you and your employer to pay lower National Insurance (NI) contributions, with the expectation that your workplace or private pension would make up the difference.

This arrangement often leaves individuals wondering whether they will receive the full State Pension. This article explains how contracting out affects your pension and what you can do to plan ahead.

What Does Contracting Out of SERPS or S2P Really Mean?

Contracting out of SERPS or S2P meant that, rather than paying full National Insurance contributions to build up entitlement to the Additional State Pension, you and your employer paid a reduced rate.

In exchange, the difference was redirected into a workplace or personal pension designed to provide similar retirement benefits. This practice was common between 1978 and 2016 and applied especially to members of defined benefit or final salary schemes.

It ended for defined contribution pensions in 2012 and was fully abolished for all schemes in 2016 with the introduction of the new State Pension.

For many people, contracting out resulted in a lower “starting amount” under the new system, making it essential to review your State Pension forecast and understand how these historic contributions affect your future benefits.

How Does Contracting Out Affect Your National Insurance Contributions and State Pension?

When you were contracted out, your National Insurance contributions were reduced because part of what you would have paid into SERPS or S2P was diverted into a private or workplace pension scheme.

As a result, your entitlement to the Additional State Pension was lower for the contracted-out years. This adjustment is reflected in your State Pension forecast.

Although you will still receive a State Pension, the total amount depends on your NI record and whether you have gained enough qualifying years since 2016.

Why You Paid Lower NI Contributions?

During periods of contracting out, both employees and employers benefited from reduced NI contributions. This reduction was designed to encourage people to invest in workplace or personal pensions instead of relying solely on the State’s Additional Pension.

Key reasons for lower NI contributions include:

• Employer incentives: Employers saved money by paying reduced contributions for staff who were contracted out.
• Employee contributions: Workers also paid less NI in exchange for opting out of SERPS or S2P.
• Diversion to private schemes: The difference in contributions was invested in defined benefit or defined contribution pension schemes expected to match or exceed State benefits.

While this arrangement appeared attractive, it meant you did not build up the same level of Additional State Pension for those years, which can reduce your State Pension forecast today.

What Happens to Your Additional State Pension?

Opting out of SERPS or S2P meant you gave up building the Additional State Pension during those years. Instead, you were expected to receive an equivalent benefit from your contracted-out pension scheme.

Here is what typically happens:

• Reduced entitlement: Your Additional State Pension under the old system is smaller or zero for contracted-out periods.
• Reliance on private benefits: The difference was intended to be covered by your workplace or private pension, known as “protected rights”.
• Adjustment in new State Pension: Under the system introduced in 2016, your “starting amount” reflects both old and new rules, minus a Contracted-Out Pension Equivalent (COPE) value.

Understanding this shift is vital for planning because the State Pension forecast will show an adjusted figure based on your contracted-out history.

What Is the Contracted-Out Pension Equivalent (COPE) and How Does It Work?

The Contracted-Out Pension Equivalent, or COPE, is an estimate of the Additional State Pension you gave up by contracting out. It appears in your State Pension forecast as an informational figure, not an actual deduction.

The government assumes you will receive an equivalent amount from your workplace or personal pension instead of from the State. COPE varies depending on how long you were contracted out and which type of pension scheme you had.

It is calculated by the Department for Work and Pensions(DWP) and used to set your “starting amount” under the new State Pension rules from April 2016.

Understanding your COPE figure helps you see whether your private pension is likely to fill the gap and gives a clearer picture of your overall retirement income.

Can You Still Qualify for the Full New State Pension If You Were Contracted Out?

Yes, it is still possible to achieve the full new State Pension even if you were contracted out. Whether you do depends largely on your National Insurance record after 6 April 2016.

The system gives you a “starting amount” based on whichever is higher: the old system (Basic plus Additional State Pension minus COPE) or the new rules based on your NI contributions.

If your starting amount was below the full new State Pension, each qualifying year you gain after 2016 adds approximately 1/35th of the full amount to your entitlement.

You can achieve this by working and paying NI contributions or by making voluntary Class 3 contributions to fill gaps. Many people who were contracted out have successfully built up to the full State Pension by accruing additional years since 2016.

How Many National Insurance Years Do You Need for the Full Pension?

To receive the full new State Pension, you generally need 35 qualifying years of National Insurance contributions or credits. If you have at least 10 qualifying years, you will receive a proportionate amount.

Contracted-out years still count towards your total number of qualifying years, but because you paid lower contributions, the pension accrued during those years was smaller. This is why your “starting amount” in 2016 may have been less than the full amount.

By continuing to work, receive NI credits, or pay voluntary contributions, you can increase your entitlement.

Understanding the rules around qualifying years is essential for planning your retirement income, as topping up your record can help you reach the full State Pension even if you were contracted out for part of your working life.

How Contracted-Out Years Count Toward Your Record?

Although contracted-out years still count as qualifying years, they reduce the Additional State Pension built up under the old system. This impacts your starting amount for the new State Pension.

Key points to note:

• Partial value: Contracted-out years give you qualifying credit but at a reduced accrual rate.
• Lower starting amount: Your initial calculation under the new State Pension reflects this reduction.
• Opportunity to top up: You can fill gaps with voluntary NI contributions or additional years after 2016.

This system ensures fairness between those who stayed in SERPS and those who opted out. By understanding how contracted-out years are treated, you can take steps to ensure you reach the 35 qualifying years needed for the full new State Pension.

How to Check If You Were Contracted Out and What Your COPE Amount Means?

If you are unsure whether you were contracted out of SERPS or S2P, it is essential to check your records. Many people were automatically contracted out by their employer without realising it.

You can do this by:

• Visiting the official “Check your State Pension” service online.
• Logging in or registering using your Government Gateway account.
• Viewing your forecast, which will show:
  • Your estimated weekly State Pension.
  • The number of qualifying years on your NI record.
  • A COPE amount if applicable.

If a COPE figure appears, it means you were contracted out at some point, and the amount shows the value of State Pension you gave up for a private or workplace pension.

Checking your National Insurance record helps identify gaps, reduced rates, and whether you’re on track for the full new State Pension, allowing you to plan for any shortfalls.

What Should You Do If You See a Contracted-Out Deduction in Your Forecast?

If your State Pension forecast shows a lower amount due to contracting out, the first step is to confirm your number of qualifying years. Check how many more years you need to reach the full State Pension before your pension age.

If you are still working and earning above the threshold, you will continue to accrue qualifying years automatically. If not, consider making voluntary Class 3 contributions to fill any gaps.

Review your private or workplace pension forecast to see whether it compensates for the COPE amount shown. If discrepancies appear in your NI record or COPE figure, contact HMRC or the Department for Work and Pensions to correct them.

Taking these actions early gives you the best chance of maximising your State Pension entitlement and ensuring your retirement income meets your needs.

How Can You Boost Your State Pension After Contracting Out?

Boosting your State Pension after contracting out is possible with the right approach. Many people who took action early have closed their gaps and reached the full new State Pension.

Steps to Increase Your Pension

• Continue working: Each qualifying year after 2016 adds around 1/35th of the full State Pension.
• Voluntary NI contributions: Pay Class 3 contributions to fill gaps in your record.
• Check for NI credits: Certain benefits such as Child Benefit or Carer’s Allowance can give you credits.

Review Your Private Pension

• Obtain forecasts from all schemes you contributed to while contracted out.
• Compare the expected income with your COPE amount to ensure you are compensated.

Seek Professional Advice

A regulated financial adviser can help you decide whether voluntary contributions or other strategies are right for you.

Combining a full State Pension with your private pension can significantly improve your retirement income. Planning ahead and acting on your forecast gives you control over your financial future.

Conclusion

Being contracted out of SERPS or S2P does not automatically mean you will receive a reduced pension. While your State Pension forecast may show an adjustment, you can still achieve the full new State Pension by building qualifying years after 2016 or filling gaps with voluntary contributions.

Understanding your COPE amount and reviewing your private pensions helps you see the bigger picture. By taking proactive steps early, you can ensure your retirement income meets your expectations and avoid unpleasant surprises at pension age.

Frequently Asked Questions

Is COPE subtracted from your State Pension directly?

No, COPE is not directly subtracted. It is an estimate of what your workplace or personal pension should provide.

Can voluntary NI contributions help if I was contracted out?

Yes, voluntary Class 3 contributions can fill gaps in your NI record and increase your State Pension entitlement.

What’s the difference between SERPS and the new State Pension?

SERPS was an additional pension under the old system, while the new State Pension is a single flat-rate payment.

Will my workplace pension fully replace my lost State Pension?

It depends on the type and performance of your scheme. Defined benefit schemes often replace more than defined contribution plans.

How do I find out which pension schemes I was contracted out into?

Check old payslips, employer records, or use the Pension Tracing Service to locate past schemes.

What is the Pension Tracing Service and how can it help?

It is a government service that helps you locate workplace or personal pensions you may have lost track of.

Why is my forecast lower even though I worked full-time?

Working full-time does not always guarantee full NI credits if contributions were reduced due to contracting out.