State pension · Guide

Contracting out and your state pension.

Millions of people who worked in the private sector before 2016 — particularly in defined benefit schemes — will find their state pension forecast is lower than the headline £221.20/week. Contracting out is usually why. This article explains the history and what it means for your retirement income.

By Pension Bible editorial team·Last reviewed 9 April 2026·6 min read

What contracting out was

From 1978 to 2016, the UK state pension had two layers. The basic state pension was the flat-rate element. On top of that, employed workers also built up an earnings-related additional state pension — called SERPS (State Earnings Related Pension Scheme) up to 2002, then S2P (State Second Pension) from 2002 to 2016.

Contracting out was an opt-out from this second layer. Employers with qualifying occupational pension schemes — predominantly defined benefit (final salary) schemes — could opt their employees out of SERPS/S2P. In return:

• Employees paid a lower rate of NI (the "contracted-out" rate, around 1.6% less)
• Employers also paid lower employer NI
• The pension scheme was required to provide a replacement pension of at least equivalent value — the Guaranteed Minimum Pension (GMP) for DB schemes

Many of the largest UK employers in banking, the civil service (though public sector workers had different rules), manufacturing, utilities, and financial services ran contracted-out schemes through much of the 1980s, 1990s, and 2000s.

Contracting out was abolished on 6 April 2016 — the same date the new state pension launched.

The contracted-out deduction on your forecast

When the new state pension was calculated for transitional cases (people who had NI records before April 2016), HMRC constructed a "starting amount" using the better of two calculations. One of those calculations incorporated the COPE — the Contracted Out Pension Equivalent.

The COPE represents the estimated value of the additional state pension you would have accrued if you had not been contracted out. It is not a penalty. It reflects the fact that your private occupational pension scheme was supposed to provide that income instead.

Your COPE figure is shown in your personal state pension forecast on gov.uk. It is informational only — it tells you what element of your private pension replaces the additional state pension you did not build up. You should see a corresponding amount in your occupational pension from the years you were contracted out.

Why your forecast might be lower than the full amount

If you check your state pension forecast and find it is less than £221.20 per week despite having 35 or more qualifying years, contracting out is the most likely explanation.

Your starting amount — the figure locked in at April 2016 — may have been calculated net of the COPE deduction. If that starting amount is below the full new state pension, you can only increase it by adding more qualifying years post-April 2016, at the rate of 1/35th of the full amount per year.

This means: if you have many more years of NI contributions to make between now and your state pension age, you may be able to close the gap. If you are close to state pension age, the gap may be permanent.

It is also worth checking that your occupational pension from the contracted-out years is actually providing the COPE income. For most people in large DB schemes, this will be accounted for in their pension. But anyone who transferred out of a contracted-out DB scheme or who has concerns about their scheme should check with the scheme directly.

What you can do about it

The first step is to get your full picture. Check your state pension forecast on gov.uk — the figure shown already incorporates all deductions including COPE. Use our state pension forecast calculator to estimate where you stand and how many more qualifying years you need.

If you have gaps in your NI record from periods of contracting out, those may still be fillable — but the COPE deduction itself cannot be reversed through buying NI years. The only route to a higher state pension if the COPE deduction applies is earning more post-2016 qualifying years.

For people approaching state pension age with a reduced forecast, the priority is ensuring the occupational pension that replaced the additional state pension is actually in place and accounted for in retirement planning. The COPE deduction is not lost income — it is income sitting in a different pot.