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EDITIONS
Thursday, 23 November, 2000, 14:30 GMT
What is Serps?
Pensioners in a Post Office
The State Earnings Related Pension Scheme was set up in the UK in 1978 to provide a second government-run pension for those without occupational or personal pension schemes.

It is paid for through a taxpayer's National Insurance contributions.

The pension amount is based on an individual's earnings and National Insurance contributions during their working life.

The more you earn over your working life, the more Serps you get, to an upper limit.

As a general guide, Serps will be, at most, 20% of the average earnings on which a person has paid National Insurance contributions over their working life.

Safety net

Essentially it makes sure that every working person has some form of pension, on top of the basic state pension.

Since the 1980s taxpayers have been able to opt out of Serps at any time, if they take out a personal pension or join a company pension scheme.

This has become increasingly popular as the pension available for those who take out company and many personal pensions will be higher than Serps for those who have plenty of earnings years left before retirement.

However, it is not necessarily in a person's interest to opt out of Serps in all cases.

In return for opting out of Serps, individuals pay a lower rate of National Insurance and do not pay tax on their pension contributions.

Serps is due to be replaced in 2002 by the State Second Pension.

Those who will qualify for the new scheme include those who have not been building up Serps contributions because of looking after children or disabled people or having a long-term disability or illness themselves.



Business view

Pensions background

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