If you are unsure, we recommend that you contact us today by completing the contact form or by giving us a call.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

The State Earnings Related Pension (SERPS) was the name of the government’s additional pension scheme until April 2002. Anyone who was earning more than £75 a week and had not “contracted out” would have been building up an additional pension under SERPS. It is now called the State Second Pension. However, people who made contributions before April 2002 will receive an additional pension based on SERPS way into the future.

The government replaced SERPS with the State Second Pension, because it wanted to give certain disabled people and those with long-term illnesses the chance to benefit from an additional pension scheme. The new scheme also fits in with the government’s political agenda, as it increases support for low to middle income earners. While the State Second Pension is still related to earnings, people on modest earnings who qualify under the rules are much better off under this system than SERPS.

If you earned enough and paid employees’ National Insurance Contributions, you were automatically a member of SERPS. This is known as “contracting in”. SERPS was related to earnings, so the amount people will get at state pension age will vary. Members of qualifying private pension schemes could “contract out” of SERPS. If employees joined a contracted-out occupational pension scheme, they and their employer would pay lower National Insurance contributions. If you contracted out of SERPS using a personal pension plan or a stakeholder pension plan, the Government paid part of your National Insurance contributions into the plan once a year in the form of a rebate.

Personal pensions, introduced on 1 July 1988, originally aimed to give people who were not part of a company pension scheme their own portable pension, designed on a money purchase basis although since April 2001 certain individuals who are members of company pension schemes can also take out personal pensions.

Contracting out through defined contribution schemes (i.e. money purchase, personal pension and stakeholder arrangements) is to be abolished from 6 April 2012. Anyone contracted out of a defined contribution scheme at that time will automatically be contracted back into the State Second Pension..