UK Pension Reform

Changes to State Second Pension (S2P / SERPS)

Back in 1978, the State Second Pension, which used to be known as SERPS (State Earning Related Pension Scheme), was introduced.

It is additional to the basic state pension. It is only for those in employment - the self employed are excluded.

It replaced a previous scheme known as Graduated Pension which ran from 1961 to 1975 (so you might still have some entitlement under this).

The State Second Pension original idea was that the state would provide a pension to anyone who was not “contracted out” with an occupational pension.

This idea has been changed somewhat over the years and in April 2002 it was renamed State Second Pension (S2P).

If you are contracted out, your occupational scheme should provide at least as good a level of pension as the S2P scheme.

Some workplace schemes keep you in S2P (contracted in) so you will qualify for this benefit as well.

At present, there is a link between your past earnings and the level of S2P payment you receive on top of your state pension.

It's complex but it is based on average life time earnings between a lower and upper earnings band. These change each year but are now roughly £5,000 to £44,000.

This is going to be gradually changed until eventually, in 2030, the S2P payment will be a flat rate on top of your state pension and will no longer be linked to your past earnings.

The plan is that for each year's work you have completed, you will receive an extra £1.50 per week on top of your state pension - up to a maximum of 40 years, which equates to £60 per week.

This flat rate will gradually be introduced between 2012 and 2030. S2P payments will be linked to prices (inflation), not to earnings, unfortunately. It will also continue not to be available to self-employed people.

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