Glossary: State Earnings Related Pension
SERPS was the name of the government’s additional pension scheme that lasted until April 2002 and it is now called the State Second Pension (SP2). Anyone earning more than over £75 a week and had not “contracted out” would have been building up an additional pension under SERPs. If you started a personal pension plan, you “contracted out” of SERPs and the government paid part of your National Insurance contributions into the plan once a year in the form of a rebate. However, as SERPs was directly related to earnings, the amount people will get when they retire will vary.
Personal pension plan
A money purchase (defined contribution) pension that the holder can make contributions to if the company they work for does not provide an occupational or final salary scheme they can join or they are self-employed. PPP contributions qualify for tax relief.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.