Additional State Pension (SERPS and State Second Pension)

There are different ways the basic State Pension can be topped up. One is the additional State Pension. You may get an additional State Pension even if you do not get any basic State Pension.

From 1978 to 2002, the additional State Pension was called the State Earnings- Related Pension Scheme (SERPS). Under SERPS, you could only build up an additional State Pension if you were an employee with earnings on which standard rate National Insurance contributions were paid (or were treated as paid). If you were contracted out of SERPS before 6 April 1997, your entitlement to SERPS will be reduced or you could possibly lose it. There is no entitlement to SERPS for contracted-out employment from 6 April 1997.

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 certain carers and people with long-term illnesses or disabilities. (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.) For employees who have not contracted out of State Second Pension, entitlement is based on earnings on which standard rate contracted-in National Insurance contributions have been paid (or treated as paid). See the next section for information about the effect of contracting out of the State Second Pension.

The State Second Pension gives employees earning between £4,108 and £26,600 (in 2004/05) more pension than SERPS would have done, with most help going to those on the lowest earnings (between £4,108 and £11,600 in 2004/05).

If you earn at least £4,108 but less than £11,600 (in 2004/05), the State Second Pension rules will treat you as having earned £11,600. The rate at which your additional State Pension builds up (the accrual rate) means that you will get at least twice as much under the State Second Pension as you would have got under SERPS.

If your earnings are higher than £11,600 but less than £26,600 (in 2004/05), your additional State Pension will build up at a higher rate through the State Second Pension than it would have done under SERPS.

For the first time, certain carers and people with long-term illnesses or disabilities whose working lives have been interrupted or shortened will be covered under the State Second Pension. From 6 April 2002, they may be able to build up an additional State Pension for periods when they cannot work.

If you are not in paid employment (or you are on very low wages – under £4,108 in 2004/05) and you are looking after a child under the age of six or a person with a long-term illness or disability, you may be able to build up an additional State Pension through the State Second Pension (on top of any basic State Pension). If you qualify, you will build up over £1 a week State Second Pension for each full tax year you are a carer, which you will receive when you reach State Pension age.

If you are not in paid employment because you are ill or disabled, from 6 April 2002 you may build up a State Second Pension for each full tax year that you are entitled to long-term Incapacity Benefit or protected Severe Disablement Allowance. If you qualify, you will build up over £1 a week State Second Pension for each full tax year you are ill or disabled, which you will receive when you reach State Pension age. This will apply as long as when you reach State Pension age you have worked and paid Class 1 National Insurance contributions for at least one-tenth of your working life since 1978. This is called the ‘Labour Market Attachment Test’.