Additional State Pension

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Pensions guide » State Pensions » Additional Pension » Do I qualify?

Do I qualify for an Additional State Pension?

The Additional State Pension is based on the payment and amount of class 1 national insurance contributions. Class 1 national insurance contributions are those paid when in employment (i.e. not self employed) and your earnings are more than the Primary Earnings Threshold (PCT). This was £89 per week in 2003/2004. So that means the following Periods of self employment do not earn any Additional State Pension accrual (i.e. class 2 national insurance contributions) Payments cannot be made if years are missed (i.e. class 3 national insurance contributions). This is a crucial difference between the Additional State Pension and The Basic State Pension. It is possible to catch up periods of missed contributions for the Basic State Pension. Periods when you are 'contracted-out' do not count towards Additional State Pension accrual. The meaning of this is explained a bit later. Therefore you are probably eligible for some sort of an Additional State Pension if you were in paid employment after 5 April 1978, earned more than the PCT in force at that time and were not contracted-out.

Contracting-out and the Additional State Pension

Contracting-out is a confusing subject, which is a shame because in essence it is very simple. Contracting-out is the mechanism the government introduced in1978 as an alternative to a full Additional State Pension. The basic idea is that an individual gives up their right to a full Additional State Pension from the government in return for paying a lower rate of national insurance contributions. However the state does not want people to end up with any less pension provision. Instead the national insurance contributions that the state has given up the right to must be used to provide a pension through some other arrangement (either a company pension scheme or an individual pension).. There are essentially two different ways of contracting-out You are a member of a company pension scheme which is contracted-out You contract out through an individual pension arrangement (i.e. something like a Personal Pension)

Contracting-out through a company pension scheme

If you are in a company pension scheme then you may be contracted-out. What happens is that both you and your employer pay a reduced rate of national insurance contributions. In return for paying lower national insurance contributions the company promises to provide a certain minimum level of benefits. i.e. your Additional State Pension is effectively being provided as part of your company pension.

Contracting-out through an individual arrangement

You may have contracted-out either currently or in the past using something like a Personal Pension. If you did then you will have a separate element of your pension which is referred to as Protected Rights. The system works slightly differently to company schemes. Instead of paying a lower amount of national insurance contributions instead you will pay a full rate of national insurance contributions but the government pays part of this back into your pension fund. The part paid back is called the national insurance rebate. The amount built up in respect of Protected Rights are the national insurance rebates the government has paid into your pension fund to top up it up.  i.e. your Additional State Pension is effectively being provided through this additional element of your pension fund. Read more about contracting-out here