COPE questions - the mechanics

Parking_Trouble

I know COPE has been discussed before and I understand the background to it but not the mechanics.

My main defined benefit pension will be reduced by approximately £750 pa when I start to take my SP next May. Not sure how that figure is derived but I was warned about this over the years leading up to retirement. Employed 1987 - 2019

Another small defined benefit pension, employed 1981-1987.

Transferred a DB scheme to SIPP (under £30k total) - employed 1974-1981

My COPE figure is £126.98
My SP forecast is £179.54 - with option to address shortfalls.

Am I guaranteed a net increase of £179.54 pw, less the £754 pa?

Will the COPE be paid via the 2 DB schemes and the rest from Govt?

What happens to the oldest DB scheme wrt COPE,  that's now in a SIPP?
It must be a tiny amount but interested what happens.

Doubt I will but  I presume I still have the option to defer SP?
Is this all handled through DWP, or do you have to notify private pension providers?

molerat

Your SP will be whatever it states in the text below the big green box.

Your other pensions should pay an amount equivalent to the COPE.  It is not a real figure, it is an estimation of what the amount your NI contributions were reduced by should / may give in those contracted out pensions. Again, it is not a real amount so the fact you have moved one of the pensions is of no relevance.  The best thing to do with COPE is forget it exists because as far as your non state pensions are concerned it doesn't. The only thing it was ever used for was calculating your April 2016 SP starting amount.

The big green box at the top of the forecast may be indicating up to £11.64 more than you will actually receive as it assumes you will be making NI contributions up to April 2024 and may be stuck at the April 2022 record so 2 more years to pay.  If you want to post up your forecast details someone will look at your options

Current weekly £££.pp amount accrued up to April 2022 (or 2023 as some have been updated)
Number of pre April 2016 NI years full
Number of post April 2016 NI years full
Tax year you reach state retirement
Any COPE amount shown, in a click link in "You've been in a contracted-out pension scheme" if there is one.
Years which show not full and prices

To defer your SP you just don't claim it, you do not have to do anything or inform anyone.  I suspect the reduction in your DB pension will start at SP age irrespective of whether you claim SP or not.

Parking_Trouble

Many thanks @molerat . I'll just forget it until I claim the SP at the earliest opportunity!

I have looked into the SP forecast, the gaps and cost to top up.

However, I'm 'very lucky' to be going into higher rate tax when I start taking the state SP so I can't see any benefit in topping up gaps, or deferring. 

xylophone

My main defined benefit pension will be reduced by approximately £750 pa when I start to take my SP next May. Not sure how that figure is derived but I was warned about this over the years leading up to retirement. Employed 1987 - 2019

Does your Scheme make a "state pension deduction"?

See

https://commonslibrary.parliament.uk/research-briefings/sn01121/

This has nothing to do with  the introduction of the new state pension.

If your scheme makes such a deduction it should be fully explained in your scheme booklet.

Examples

Barclays

https://www.grove-pensions.co.uk/defined-benefit-pension-transfer/schemes/barclays-bank-uk-retirement-fund/#:~:text=A State Pension Deduction (SPD,dependant's pension on your death.

HSBC

https://futurefocus.staff.hsbc.co.uk/-/media/project/futurefocus/information-centre/active-hybrid/guides/august-2000-midland-member-guide.pdf

See page iii of the booklet for definition also mentioned in various places throughout the booklet.

RPS

https://www.mynrpension.co.uk/how-your-rps-pension-works/

Parking_Trouble

Thanks @Xylophone.

I am with Lloyds Bank Scheme 1. It does have a State Pension Deduction.
Just checked and for me it's a £734 pa reduction.
I've always been aware of this so it's been factored into my plans. 
Just got a bit confused about the relevance of the COPE number.

Need to look at the ROI of filling gaps in NI to double check if I'm likely to see a benefit.
I guess whilst triple lock is in place and inflation is above 5% then SP is going to get better annual rises (by %). It might compensate a bit for private pensions getting eroded.

molerat

A post 2016 year will give you £5.82 pw pension.  That outlay pays back gross in around 3 years, the same as an annuity paying 30% (which you would also pay tax on).  It looks like you need another 4 years to get close to the max, a 5th not adding much. Purchasing a pre 2016 gap will not add to the pension.

xylophone

Just got a bit confused about the relevance of the COPE number.

At 6/4/16, your "starting amount" for new state pension was calculated as the higher of

Old Rules

NI qualifying years/30 x £119.30 (Full Basic) + (Additional State Pension - Deduction for Contracting Out)

New Rules

{NI qualifying years/35 x £155.65 (Full NSP)} - Contracted Out Pension Equivalent. 

Quite obviously your SA was given by the old rules calculation and was under the full NSP.

You still had a number of years before you would reach SPA.

Contributions/credits from 6/4/16  up to and including the last full tax year pre SPA could improve your SA up to (but not in excess of) a full NSP.

The COPE derives from the years when you were contracted out of Additional State Pension as a member of your employers' DB Pension Schemes.

Both you and your employers paid lower  levels of NI to account for this.

Between 1978 and 1997, you were accruing a "Guaranteed Minimum Pension" within your occupational pensions and from then onwards up to 5/4/16, in order to remain  contracted out, the scheme had to meet the "Reference Scheme Test" which meant that you were accruing Section 9(2B) rights within the Scheme pension. In effect, the schemes had to provide a benefit at least as great as you would have earned had you remained "contracted in".

It seems that you have now reached age 65 which is GMP age for a man.

You might wish to check the scheme booklets as to how your scheme pensions with GMP will increase post age 65.

You may well find that your scheme pensions are split into pre 88 GMP/post 88 GMP and excess.

It is likely that the scheme will pay no increase on pre 88 GMP and only up to 3% CPI on post 88 GMP with the balance increasing under scheme rules.

As to the transferred out pension, it is now simply a DC scheme and you can access it as advised by the provider.

Parking_Trouble

My main pension increase is linked to the lower of RPI or 5%. I joined in 1987.
Pension from previous employer 1982 - 1987 gets little or no rise. Got 2.25% this year. It's relatively small amounts so not too bothered.

SP forecast (payable from May 2024) is £179.54 based on NI record  
Max is £202.83 if I fill the gaps from 20/21 (£673), 21/22 (£800) , 22/23 (£824) 23/24 (guessing £850)

A return after year 3 gross ( as mentioned by @molerat above) , or 4 years 9 months net (call it 5 years). On reflection it might be worth filling in some gaps and hope can make it to my average life expectancy, 85 years old!

xylophone

Pension from previous employer 1982 - 1987 gets little or no rise. Got 2.25% this year. It's relatively small amounts so not too bothered.

How is it split between GMP and excess?

My main pension increase is linked to the lower of RPI or 5%. I joined in 1987.

How is it split between pre 88 GMP/post 88 GMP and excess?

Parking_Trouble

xylophone said:

Pension from previous employer 1982 - 1987 gets little or no rise. Got 2.25% this year. It's relatively small amounts so not too bothered.

How is it split between GMP and excess? -

GMP  built up before April 6 1998  £1,647.36. I don't think this portion gets any annual increases

Pension Built up before 6 April 1997 £548.64 - a reduced figure due to taking a £14k lump sum.

My main pension increase is linked to the lower of RPI or 5%. I joined in 1987.

How is it split between pre 88 GMP/post 88 GMP and excess?

Can't find these figures yet. need to search for paperwork. Joined in April 1987 so must be a small amount or pre-88 GMP.

Replies embedded above

xylophone

Neither scheme has any obligation to increase the pre 88 GMP in payment.

Post 88 GMP in payment is increased by the scheme up to 3% CPI.