What is ‘COPE’ and why has it disappeared from state pension statements? STEVE WEBB responds

I recently received my state pension statement as I will qualify for the full state pension when I turn 66 in November.

However, it does not indicate the ‘COPE’ – the ‘outsourced pension equivalent’ – that I have accumulated in previous years when I was outsourced while working in the civil service.

My COPE was about £50 a week in pension forecast statements, but now it seems to have disappeared when I log in.

I’m starting to wonder if I’ve misunderstood COPE and if this figure is purely informational and not a valid payment that I will actually receive in my hand. Can you clarify?

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Steve Webb responds: In recent years I have had more questions about the mysterious ‘COPE’ figure that appears in state pension forecasts than about almost any other topic.

This week I will clarify what it is and where it has gone.

The story begins in 1978, when the government of the day introduced an additional state pension that people could accumulate on top of their basic state pension.

This pension was known as the State Income Related Pension Plan or SERPS for short.

The idea was that all workers should be able to build up an earnings-related pension on top of the standard base rate.

However, when the SERPS was introduced, millions of workers were already building up an earnings-related pension through their occupational pension scheme.

It clearly made little sense to charge all workers additional national insurance to pay the additional state pension, which meant that a group of workers were paying two earnings-related pensions: one from their employer and one from the state.

To overcome this problem, the idea of ​​”outsourcing” was applied.

In simple terms, workplace pension schemes were given the option of providing earnings-related benefits rather than the State doing so.

The employer and employee in such schemes were allowed to pay a lower (outsourced) rate of National Insurance contributions.

In return, the scheme had to promise to provide a pension at least as good as the SERPS pension the worker could have otherwise accrued.

This was known at the time as the Guaranteed Minimum Pension (GMP).

When people retired under this system, their state pension was calculated as if they had always been in both parts of the state pension system: basic plus SERPS.

But a deduction was then made to reflect the fact that they paid less and that their workplace scheme had promised to replace part of their state pension.

When the new state pension was introduced in 2016, a decision had to be made about how to treat the millions of workers who had endured periods of outsourcing.

The aim of the new state pension was to simplify things and pay everyone a fixed, standard amount. This would have made pension planning and communication much easier.

But simply ignoring decades of contributing at a reduced rate – and paying the full fixed rate anyway – would have been totally unfair to the remaining workers who had always paid full NI in order to get a full pension.

The compromise was to make a one-off deduction from people’s state pension from 2016, but then allow them to “burn” this deduction through post-2016 contributions.

Not surprisingly, not many people had time to follow all this logic and were left confused and angry when they simply didn’t get the full new state pension they had heard so much about.

My successors as Pensions Ministers had to spend a lot of time explaining why people weren’t receiving the full flat rate, so one of them came up with the concept of COPE – the ‘outsourced pension equivalent’.

This figure was intended to be a signal to people that they had had some of their state pension taken away due to previous outsourcing, but that they should receive a similar figure from a workplace pension instead.

The problem was that the COPE figure itself confused people.

This was particularly the case where people had taken out a “money pot” type pension which may not have actually returned the COPE figure due to poor investment performance or low annuity rates.

There was also considerable confusion over whether the main state pension forecast figures that could be seen online had already taken the COPE figure into account or whether the COPE figure needed to be mentally deducted to calculate what would actually be obtained.

In fact, you can always ignore the COPE figure: it had already been taken into account as part of the calculation, so there was no need to discount it again.

Several readers have gotten in touch to say that the COPE figure appears to have mysteriously disappeared.

I understand that the Department for Work and Pensions had received many comments from people confused by the figure and that is why they decided that from April 2024 it would no longer appear.

In his individual case, his COPE figure always told him that he also had a “contracted” pension (in his case with the civil service) and that his state pension would be complemented by a work pension equivalent to at least the COPE. number.

Nothing has changed in this regard.

The bottom line is that you can always ignore the COPE figure.

It was designed to help people understand that for some reason they were missing their full pension, but in the end it caused more confusion than it saved.

For my part, I am glad to see the silent death of COPE.