Additional State Pension

The additional State Pension is a top-up of the standard State Pension. Also known as SERPs and more recently S2P.

Introduced in 1978 the additional State Pension was designed to give us extra income in our retirement years. Originally it was based on National Insurance contributions, meaning the more you earned, the higher your additional pension would be.

It was introduced as SERPS, which stood for the State Earnings Related Pension Scheme. It was compulsory for everyone making National Insurance contributions. It was an earnings related pension, but did not benefit those unable to work.

SERPS

SERPS was replaced in 2002 by S2P, the State 2^nd Pension, which was designed to give a fairer deal to those in need. Those on low to medium incomes, carers and people with a long term disability or illness now benefit from the new scheme and providing they fulfil certain criteria now build up an additional State Pension through credits.

Whilst currently, the more you earn, the more you receive, up to a limit, the government wants to make the additional State Pension a flat rate payment by 2030.

Low to Medium Earners

The new system helps low and medium earners by allowing them to accrue the maximum amount for someone falling within their contributions band. So in 2008 the first contributions band applies to all those earning between £4,680 and £13,500. However, everyone is treated as having earned £13,500. The second band applies to people earning between £13,500 and £31,000 and they will also benefit more from the new S2P scheme than the previous SERPS.

Not in Paid Employment

If you don’t make National Insurance contributions, either through not working or earning less than the minimum tax band you may still benefit from the S2P scheme. If you are looking after a child under the age of 6, or someone with a long term illness or disability, you may qualify to build up an additional State Pension anyway. If you qualify you will build up just over £1 a week for each full tax year you are caring for someone.

If you yourself are suffering from a long term illness or are disabled you could also qualify. If you are entitled to long term Incapacity Benefit you will also build up S2P for each full tax year you claim the benefit. This will only apply if when you reach State Pension age you have paid Class 1 National Insurance contributions for at least a tenth of your working life, since 1978.

If you want to have more for your retirement, see other saving options Here

Contracting Out

There has, and until 2012 will be, the option to contract out of your additional State Pension. This means you will not build up any additional State Pension whilst you are contracting out, but that you and your employer will either pay preferential National Insurance contributions or in the case of personal and Stakeholder pensions the government will pay a contribution into your pension fund.

Someone will contract out of the additional State Pension if they have a personal, company or Stakeholder pension and feel that the increased contributions made to this pension as a result of either paying lower National Insurance contributions, or receiving direct government contributions to their own pension pot, will benefit them more than the additional State Pension in retirement. Because of the nature of annuities and the volatility of the annuity rate market this is not a decision to be taken lightly and professional help should be sought.

From April 2012 the option to contract out will be abolished, simplifying the process and making it easier to understand. Those already contracting out will be able to continue to do so.

This table compares four saving products that can help you to save more for your retirement. We have chosen products that can bring you extra money in the future. Which one to choose from, it will depend on the type of investment you want.

Provider	Product	Advantages	Disadvantages	More Info
	MoneyBuilder	• Tax free end cash pay-out • Monthly contribution starts at only £10 • Life cover included	• 15 years plan • Early “cash in” is not an option as you will lose too much
	Stocks&Shares ISA	• Returns free of Income and Capital Gains Tax under ISA rules • Monthly contribution from £30 • No restrictions on the amount of time you keep the money invested • You can transfer the ISA	• £10,680 maximum contribution in one year • It isn’t risk free
	Cash ISA	• Good online support and advising • You can transfer the ISA • They won’t charge for withdraws • You know what savings rates to expect • Tax free interest	• £5,340 maximum contribution in one year
	3 year Fixed Rate ISA	• Fixed rate, risk free • You can transfer the ISA • Tax free interest	• £5,340 maximum contribution in one year • Limited to 3 years

More Information on State Pensions

State Pension – Basics

Additional State Pension

Voluntary National Insurance Contributions

State Pension for the Self Employed

Deferring your State Pension

What happens when you die?

Contracting Out

State Pension – FAQ