Additional State Pension (SERPS and State Second Pension)

If you are an employee, you can choose to build up an additional State Pension on top of the basic State Pension. Up to April 2002, the additional State Pension was called the State Earnings-Related Pension Scheme (SERPS). SERPS was based on your record of National Insurance contributions and your level of earnings as an employee.

On 6 April 2002 the Government reformed SERPS, creating the State Second Pension to provide a more generous additional State Pension for low and moderate earners, and for certain carers and people with a long-term illness or disability. (Any SERPS entitlement that has already been built up will be protected, both for those who have already retired and for those who have not yet reached State Pension age.)

As with SERPS, if you are self-employed you will not be covered by the State Second Pension.

Generally, if you are on low earnings (currently earning less than £11,600 a year), you could be better off staying in the State Second Pension. If you are close to State Pension age, you could also be better off staying in the State Second Pension and putting any spare money into an ISA (an Individual Savings Account). There are two leaflets available on ISAs which you may find helpful: FSA guide to ISAs: An introduction, produced by the Financial Services Authority, and ISAs, PEPs and TESSAs (IR2008), produced by the Inland Revenue. Click here for details about how you can get copies of these leaflets.

The best option for you will depend on your personal circumstances and the number of working years you have left until you plan to retire. You may want to talk about your options with an independent financial adviser.