What is it?

Depending on your individual circumstances, you may be entitled to additional State Pension. As its name suggests, additional State Pension is paid in addition to the basic State Pension.

Up to April 2002, the additional State Pension was called the State Earnings-Related Pension Scheme (SERPS). SERPS was based on your record of National Insurance contributions and your level of earnings as an employee.

On 6 April 2002, the State Second Pension reformed SERPS to provide a more generous additional State Pension for low and moderate earners, and to extend access to include certain carers and people with long-term illness or disability. (Any SERPS entitlement already built up is protected both for those who have already retired and for those who have not yet reached State Pension age.)

The State Second Pension gives employees earning up to £26,600 (in 2004/05 terms) a better pension than SERPS, whether or not they are contracted out into a private pension, with most help going to those on the lowest earnings (up to around £11,600 in 2004/05 terms).

When you make your claim for a State Pension any additional State Pension due to you will also be calculated.

Why was it changed?

The government felt Serps was unfair.

The additional pension gained under the new State Second Pension is still based on earnings, but the big difference is it will give people on low and modest earnings the chance to build up a better pension.

The new system also opens the additional state pension to certain carers and people with erratic work patterns, due to a long-term illness or disability.

What about people with Serps?

Any Serps entitlement that has already been built up will be protected, both for those who have already retired and for those who have not yet reached state pension age.

Do I have to be a member of the State Second Pension scheme?

No, you can leave it by choosing to take out an occupational pension or personal pension.

If you do so, and "contract out" into an occupational scheme, you will pay lower National Insurance contributions.

If you "contract out" into a personal pension scheme, such as a stakeholder, you will pay the same National Insurance contributions.

And the Inland Revenue should top-up that personal pension with the amount equivalent to what you will have paid towards your additional state pension.