One of the most common reasons people’s new State Pension forecast is lower than the full amount is a history of contracting out. Understanding what contracting out was, how the contracted-out deduction works, and what you can do about it is essential for anyone whose State Pension forecast shows a starting amount below the full new State Pension.
A Brief History of Contracting Out
| Period | Scheme | What happened |
|---|---|---|
| 1978–2002 | SERPS | Employers could contract employees out of SERPS, paying reduced NI, and contributing to an occupational DB scheme or personal pension |
| 2002–2016 | S2P (State Second Pension) | Contracting out continued for DB occupational schemes (closed for defined contribution from 2012) |
| 6 April 2016 | S2P abolished | Contracting out ended for all schemes; new State Pension introduced |
During contracted-out periods:
- You (or your employer) paid lower NI contributions (the “contracted-out rebate”)
- The rebate was directed into your private pension scheme instead
- You did not build up SERPS/S2P entitlement during those years
The Starting Amount Calculation
When the new State Pension launched on 6 April 2016, DWP worked out a “starting amount” for everyone with National Insurance years up to 5 April 2016, using whichever was higher of:
- Old rules calculation: Basic State Pension (proportional to NI years) + Additional State Pension built up (SERPS/S2P), minus Contracted-Out Deduction (COD)
- New rules calculation: what you’d have got if the new State Pension had been in place for your whole working life (qualifying years × 1/35 of the full rate), also minus a contracted-out deduction
DWP applied the contracted-out deduction to both calculations.
The higher of these two figures became your starting amount on 6 April 2016.
The Contracted-Out Deduction (and COPE)
How much is taken off depends on how long you were contracted out and what you earned at the time. It isn’t money you’ve lost: while you were contracted out, you were paying into a workplace or personal pension instead, and that pension is meant to make up for it.
Older online forecasts showed a figure called COPE (Contracted Out Pension Equivalent) for people who had been contracted out. GOV.UK’s current guidance doesn’t use the term; if your forecast or an old statement shows a COPE figure you don’t understand, the Future Pension Centre (0800 731 0175) can explain it.
Example (illustrative, 2026/27 rates):
- New State Pension (full): £241.30/week
- Your starting amount (after the contracted-out deduction): £180.00/week
- Shortfall to the full rate: about £61.30/week, which qualifying years after April 2016 can make up (see below)
How to Increase Your State Pension Above Your Starting Amount
Additional qualifying NI years earned after April 2016 increase your State Pension:
- Each additional qualifying year adds approximately £6.89/week (£241.30 ÷ 35, 2026/27 rate)
- You can accumulate additional years through employment, NI credits, or voluntary contributions
- The maximum is capped at the full new State Pension amount (£241.30/week in 2026/27)
- If you were contracted out, you may need more than 35 qualifying years in total to reach the full rate: each year after April 2016 keeps adding about £6.89 until you get there
Worked example (illustrative):
- Starting amount (after the contracted-out deduction): £180/week
- Years needed to reach full pension: (£241.30 − £180) ÷ £6.89 ≈ 8.9 years of post-April 2016 qualifying years
- If you have 8 qualifying years since April 2016: State Pension = £180 + 8/35 of the full rate (£55.15) = £235.15/week
- One further qualifying year would bring you to approximately the full pension
Checking Your Forecast
The GOV.UK State Pension forecast service (gov.uk/check-state-pension) shows:
- Your starting amount
- How many qualifying years you have post-April 2016
- What you are projected to receive at State Pension age
- Whether buying voluntary NI contributions would increase your pension