How does contracting out affect my State Pension?

Full answer

Contracting out was a system that ended in April 2016. If you were a member of a contracted-out workplace pension (or a personal pension arrangement), you and your employer paid a reduced rate of National Insurance. In return, you stopped building up the additional State Pension (SERPS or State Second Pension) and instead accrued benefits in your own scheme, which was meant to replace that portion. Impact on the new State Pension: when the single-tier new State Pension launched in April 2016, HMRC calculated a starting amount for everyone, taking the higher of the old-rules and new-rules figures. For people who were contracted out, a deduction known as the Contracted-Out Pension Equivalent (COPE) was applied, reflecting the additional State Pension you gave up. This is why some people with many years of NI contributions still found their starting amount below the full new State Pension of GBP 241.30 a week (around GBP 12,548 a year for 2026/27). The good news: any qualifying years you build from April 2016 onwards add to your starting amount (up to the full flat rate), so you can usually close part or all of the gap by continuing to work, paying NI, or filling gaps with voluntary contributions. Voluntary Class 3 NI costs GBP 18.40 a week (GBP 956.80 a year) for 2026/27, and each year bought can add a useful slice to your eventual pension. Who it affects: anyone who worked in a contracted-out scheme before 2016, common in the public sector and many older final-salary schemes. Worked approach: get your State Pension forecast on gov.uk to see your starting amount, your COPE deduction, and how many more qualifying years you need. Then use a pension calculator to model topping up.

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