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From 6 April 2002 the State Earnings Related Pension Scheme (SERPS) will be reformed to provide a more generous Additional Pension for low and moderate earners, certain carers and people with long-term disability. This will be called the State Second Pension.
It will give employees earning up to about £26,600 a year (at 2004/2005 levels) a better pension than SERPS, with most help going to those on the lowest earning (up to around £11,600 at 2004/2005 levels).
If you earn above the Lower Earnings Limit (£4,108 for 2004/2005) but below about £11,600 a year the State Second Pension rules will treat them as if they had earned around £11,600 and the rate at which their additional pension builds up (the accrual rate) will be greater than under SERPS. This means that they will get twice as much pension under State Second Pension than someone earning around £11,600 would have got from SERPS.
A person who is not in paid employment because they are looking after a child under 6, or a disabled person, may be able to build up State Second Pension. If they qualify they will build up about £1 a week State Second Pension, payable when they reach pension age, for each year of caring.
Someone who is not in paid employment because they are ill or disabled may build up State Second Pension for each year that they are entitled to long-term Incapacity Benefit or Severe Disablement Allowance for a full year. If they qualify they will build up about £1 a week State Second Pension, payable when they reach pension age, as long as, when they reach State pension age, they have worked and paid Class 1 National Insurance contributions for at least one tenth of their working life since 1978. The maximum amount of State Second Pension that a widow or widower can inherit will be 50%.
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