What is it?
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The Additional State Pension is payable on top of the Basic
State Pension and was introduced with effect from 5 April 1978. The
Additional State Pension is an earnings related pension. Therefore
the more you get paid (actually the more national insurance you pay)
the more pension you should receive.
This is a second
layer of state pensions and effectively provides a top up pension
based on an individuals level of earnings over their career. Unlike
the Basic State Pension the amount of pension you receive from
the Additional State Pension is as a direct result of the amount you earned and hence
the amount of national insurance contributions you paid (remember
the Basic State Pension depends only on the number of
qualifying
years irrespective of the actual amount of national insurance
contributions actually paid).
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History
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When the Additional State Pension was introduced in 1978 it was
called The State Earnings
Related Pension Scheme (SERPS). This continued until 5 April 2002 although it did receive
some modifications along the way, which have reduced its value. On 5 April 2002 SERPS was replaced
with The State Second Pension (S2P). This is also related to your
earnings over your career but works in a slightly different (more
complicated) way to SERPS.
So currently the Additional State Pension consists of two parts. The
first part was applicable from 5 April 1978 to 5 April 2002 and was
called SERPS. The accrual of SERPS pension stopped in 2002 (although you will still receive
any pension earned to this date) and was replaced with S2P for
accrual of pension from 2002. S2P is still in existence now although
it is likely this will change in the near future.
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The Future
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It is eventually intended that S2P
will become a flat rate pension, i.e. not related to earnings. This
will reduce its value still further over time. It is currently
thought that this change to S2P will take place around 2007.
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Read the guide to
investment in the pensions guide. It explains what you need to
think about before investing for your retirement.
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Get the FREE Pension calculators from Essential Pensions.
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Use our online calculator
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