Q&A: State Second Pension

Low earners have their state second pension topped up

As part of its understanding pensions series, the BBC News website provides an introduction to the new State Second Pension, introduced in April 2002.

What is it?

The State Second Pension is the new "additional pension" system.

It replaced the State Earnings Related Pension (Serps) on 6 April 2002.

People who were paying under Serps should still be paying into an additional pension, just under the new scheme.

In effect, this means that in the future many people will receive part of their additional pension from Serps and part from the new system.

Why was it changed?

The government felt Serps was unfair.

The additional pension gained under the new State Second Pension is still based on earnings, but the big difference is it will give people on low and modest earnings the chance to build up a better pension.

The new system also opens the additional state pension to certain carers and people with erratic work patterns, due to a long-term illness or disability.

This is because the system "credits" or "bumps up" earnings for eligible groups to a flat rate of £12,100.

In other words, if you earn under this amount, the State Second Pension rules treat you as if you had earned £12,100 and you will also get a State Second Pension top-up.

What about people with Serps?

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.

Do I have to be a member of the State Second Pension scheme?

No, you can leave it by choosing to take out an occupational pension or personal pension.

If you do so, and "contract out" into an occupational scheme, you will pay lower National Insurance contributions.

If you "contract out" into a personal pension scheme, such as a stakeholder, you will pay the same National Insurance contributions.

And Revenue and Customs should top-up that personal pension with the amount equivalent to what you will have paid towards your additional state pension.