BIFA - What is SERPS? Contact
The State Earnings Related Pension Scheme, SERPS was introduced in 1978 by the Social Security Pension Act 1975. It is additional to the basic old age pension entitlement. SERPS does not apply to self-employed individuals as they pay a different class of National Insurance, which does not provide this type of benefit. A person who reached the state pension age before 6th April 1999 was promised a pension of 1.25% of earnings within the middle band earnings (the part of your income on which National Insurance is paid) for each year of contribution between 1978 and 1999. This produced a maximum income of 25% of the middle band earnings revalued in line with National Average Earnings (the average increase in national income).
For those reaching state pension age in 1999/2000 or later, the promise was a revalued pension equal to 25% of the average of the highest best 20 years income between the lowest and the highest National Insurance payment levels. However, with effect from April 1988 this promise was cut back. Eventually the SERPS pension will be calculated as 20% of every contributor’s average revalued lifetime earnings (rather than the best 20 years), a significant reduction.
Those who were contributing to SERPS prior to the 1988 changes will have part of their SERPS pension calculated based on the original 25% formula. The contributions paid from 1988 onwards will be calculated according to the tax year in which their state pension age falls:
| Percentage of benefit paid showing the reduction up to 2009/2010 for each tax year. | |||||
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| 1999/2000 | 2000/2001 | 2001/2002 | 2002/2003 | 2003/2004 | 2004/2005 |
| 25.0% | 24.5% | 24.0% | 23.5% | 23.0% | 22.5% |
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| 2005/2006 | 2006/2007 | 2007/2008 | 2008/2009 | 2009/2010 or later | |
| 22.0% | 21.5% | 21.0% | 20.5% | 20.0% | |
Barnes IFA can arrange for you to receive a SERPS Pensions forecast as part of the SERPS review service.
