Important changes on the horizon
The additional State Pension, or State Second Pension, is paid in addition to the basic State Pension. Your entitlement to the additional State Pension (whether from SERPS – State Earnings-Related Pension Scheme, or from the State Second Pension) is calculated when you claim the basic State Pension.
Until April 2002, the additional State Pension for employees was called the State Earnings-Related Pension Scheme (SERPS). The amount of SERPS pension you received was based on a combination of the amount of your National Insurance Contributions, and how much you earned.
In April 2002, SERPS was reformed and the additional State Pension is now known as the State Second Pension. It gives a more generous additional State Pension to low and moderate earners, and certain carers and people with a long-term illness or disability.
By around 2030 or shortly afterwards the State Second Pension will become a simple, flat-rate weekly top-up to the basic State Pension.
Any SERPS entitlement you have is protected, so if you built up an entitlement to the additional State Pension before April 2002 you will keep it, whether or not you’ve already reached State Pension age.
A widow, widower or surviving civil partner can only inherit a maximum of 50 per cent of their spouse’s or civil partner’s State Second Pension.
If you contributed to SERPS the maximum percentage of your SERPS pension that your widow, widower or surviving civil partner could inherit is on a sliding scale depending on when you were born and the age at which you retired.
The percentages range from 50 per cent for men born on or after 6 October 1945 or women born on or after 6 July 1950, up to 100 per cent for men born on or before 5 October 1937 or women born on or before
5 October 1942.
If you are a carer, on low earnings or have long-term disabilities you can now benefit from an improved additional State Pension.
If you don’t work or if you earn less than the annual National Insurance lower earnings limit, you can still build up an entitlement if you:
– look after a child aged six or less, and you are the person who claims and gets Child Benefit
– take care of someone who is ill or disabled, and you qualify for Home Responsibilities Protection
– are entitled to Carer’s Allowance (even where you don’t get this because you get a benefit that pays more)
There are important changes from 6 April 2010 that might affect you:
– if you care for children (up to the age of 12) then you will build up entitlement to State Second Pension
– if you are a foster carer then you will build up entitlement to State Second Pension
– if you spend at least 20 hours a week caring for one or more disabled people then you will build up entitlement to State Second Pension
You might also be able to gain a qualifying year for State Second Pension by combining:
– your NICs from earnings in part of a tax year
– credits for other parts of the same year
When you contract out you choose to pay a reduced amount of NICs because you have joined an occupational pension scheme. As a result, you will not normally be entitled to the full State Second Pension because your additional pension will come from your employer’s scheme. But you will normally be entitled to a reduced additional State Pension.
If you have a stakeholder pension or a personal pension you can still contract out if you wish, but instead of you paying a reduced NIC, HM Revenue & Customs will pay an annual rebate of contributions direct into your personal pension. If you choose not to contract out you will not receive this rebate, but you will still build up entitlement to the State Second Pension.