If you have paid enough National Insurance contributions you will automatically be entitled to the basic State Pension.
But in addition the state also provides a second pension for many people. It is probably the most complicated - and least understood part - of the pensions system.
The complications are this:
- The rules have been changed frequently. This means people are likely to have built up a pension under more than one set of rules. These changes have been made for two main reasons - cutting the cost of pensions and disagreements about the purpose of the second additional state pension.
- Not everyone is building up a state second pension. This is because it is possible to be 'contracted-out' of the state second pension in two ways:
- First, occupational pension schemes can contract out if they provide a pension that is better than
the state second pension. If you are a member of such a scheme, you cannot also be a member of the state second pension.
- Second, individuals can opt out of the state second pension. If they do this the state pays a contribution to a personal pension that you nominate. In the past this has been worthwhile for many, but most experts now say that this is a bad deal and that you are better off opting back into the state second pension.
The amount that you will get paid will depend on your National Insurance contributions for years that you are not contracted out. Unlike the state second pension, where your eligibility simply depends on the number of years you have paid national insurance contributions, the state second pension depends on how much you pay as well as how long you pay. However the relationship is not simple and has been subject to change.
Of course many people will not have the same pension arrangements all of their working lives. So it's quite possible to retire with some State Second Pension (calculated on more than one basis for different periods), some pension from a contracted-out scheme and some personal pension built up through an individual opt-out.
The additional State Pension used to be called SERPS. But SERPS has now been replaced by the State Second Pension, usually called S2P. S2P is designed to give the low paid more assistance. Any SERPS pension you have built up is fully protected.
You can find out more about the state second pensions here on the Pension Service website.
