additional state pension
On top of your basic state pension*, you may get an additional pension from the state. From April 2002 this has been known as the State Second Pension (S2P*) but it used to called the State Earnings Related Pension Scheme (SERPS*). So when you retire, you may get a combination of S2P and SERPS if you’ve been contributing before April 2002.
The main difference between the basic state pension and the additional state pension* is that the basic state pension is flat rate while S2P is earnings related – that is, the more you earn the higher the additional state pension you can get. You may get an additional state pension even if you do not get any basic state pension.
Who is entitled to the additional state pension?
There are some major differences between the way SERPS and S2P is worked out.
You could not build up SERPS if you weren’t able to work if, for example, you were caring for children or someone who was disabled. Under SERPS, you could only build up an additional state pension if you were an employee with earnings on which you were paying, or on which you were treated as having paid, standard-rate National Insurance contributions* – if you were earning at least the lower earnings limit (LEL*). If you were contracted out of SERPS before 6 April 1997, your entitlement to a SERPS pension will be reduced or you could possibly lose it. You would not be entitled to a SERPS pension from 6 April 1997 if you contracted out.
S2P was designed to address some of these disadvantages. S2P provides a more generous additional state pension for low and moderate earners, and includes certain carers and people with long term illnesses or disabilities. Any SERPS pension 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*. From 6 April 2002, the additional state pension is available to the following groups of people:
- if you’re an employee earning at least the lower earnings limit (LEL) – currently £95 a week in 2009/10;
- if you care for one or more children under six years of age who they are claiming child benefit for
- if you qualify for carers allowance through looking after someone who is ill or disabled
- you may qualify if you are entitled to long-term incapacity benefit or severe disablement allowance and have been in the workforce for at least one-tenth of your working life.
If you are an employee and have not contracted out of the S2P, your entitlement is based on earnings on which you are paying (or treated as paying) standard-rate contracted-in* National Insurance contributions.
S2P gives employees earning between £4,680 and £31,500 (in 2008/9) more pension than SERPS would have done. Most help goes to people on the lowest earnings - between £4,680 and £13,500 (in 2008/9).
If you earn at least £4,680 but less than £13,500 (in 2008/9), you will be treated as having earned £13,500. The rate at which your additional state pension builds up (known as the accrual rate*) means that you will get at least twice as much under S2P as you would have done under SERPS.
If your earnings are higher than £13,500 but less than £35,000 (in 2008/9), your additional state pension will build up at a higher rate through the S2P than it would have done under SERPS.
If you are not in paid employment (or you are on very low wages – under £4,940 in 2009/10) 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 S2P (on top of any basic state pension). If you qualify, you will build up over £1 a week S2P for each full tax year you are a carer, which you will receive when you reach state pension age. There is no limit to the number of years that can count in this way.
If you are not in paid employment because you are ill or disabled, from 6 April 2002 you may build up S2P for each full tax year that you are entitled to long-term Incapacity Benefit. If you qualify, you will build up over £1 a week S2P 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).
Who is not covered by S2P
Even with the changes, not everyone is covered by the additional state pension whether under SERPS or S2P. You cannot build up additional state pension for any period where:
- you are not working
- you are self-employed
- you earn less than the lower earnings limit (LEL) – currently £4,940 (£95 a week) for 2009/10
- you have contracted out of the additional state pension and instead pay into a personal pension* and earn more than £13,500 for 2008/9.
- you are contracted out of the additional state pension and instead pay into an occupational pension* scheme and earn above £31,500 (in 2008/9).
However, in some circumstances, carers and people with long-term illnesses and disabilities can build up an additional State Pension even if they are not in work.
How much is it worth?
As the additional state pension is earnings related, the more you earn over your working life the higher the pension you will get. The maximum additional state pension you could qualify for (in 2008/9) is £151.10 a week. However, few people would actually get this maximum level as they would have been contracted out for long periods so the ‘average’ is bound to be much lower.
But it is very difficult to work out yourself how much you should get from additional state pensions when you retire as the calculation is complicated and you may have built up a combination of SERPS and S2P over the years.
If you want to know how much state pension you may get when you reach state pension age, it is probably easier to contact the State Pension Forecasting Team at The Pension Service www.thepensionservice.gov.uk< or by telephone on 0845 3000 168.
The Pension Service will give you a forecast of the pensions you may expect to get from state pensions including basic state pension and additional state pension. You will have to fill in an application form to get a forecast. You can download the form from the website or get the forecasting team to fill the form in over the phone.
However, you need to remember that any forecast you get can only be an estimate of what you might get from your state pensions as part of it will be based on assumptions about your future circumstances. But it does at least provide a useful guide to the income you should expect to get from state pensions. You can use this to get an idea of whether you’re saving enough to provide a decent income in retirement – use the calculator on the Pensions Doctor website.