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UK Money
In 2002 the government renamed it’s
secondary pension scheme from what was
previously known as the State Earnings
Related Pension, or more concisely, Serps,
to the much more apt State Second Pension.
Under Serps anyone who was earning in excess
of £75 a week and had not ‘contracted out’ –
taken a privately run scheme with their
employer – was eligible to build up an
additional state pension under Serps. The
government chose to rename it in 2002 in
order to give certain disabled people and
those with long-term illnesses who were
unable to work and thus build up Serps the
opportunity to benefit from an additional
pension scheme. However, if you had been
contributing to Serps before the change of
the name in April 2002, you will still
receive an additional pension based on
Serps.
The new scheme also offers increased support
for low to middle income earners, another
reason for the overhaul. Though the State
Second Pension - like Serps – is related to
income, people on modest earnings who
qualify are much better off because of
government credits that bump up all eligible
groups to a flat rate of £12,100 from April
2005. This means that a person contributing
to a contracted out personal pension who
earns less than £12,100 in a tax year will
also get a top-up through the State Second
Pension.
Serps was related to earnings, so the amount
that people receive at state pension age
will vary, sometimes considerably. You were
considered to have ‘contracted in’ if you
earned enough and paid employees National
Insurance Contribution, you were
automatically a member of Serps and
therefore in line to receive extra payment
at retirement. If you had ‘contracted out’
however, you would have paid a lower
National Insurance contribution, as would
your employer.
Serps, and now the State Second Pension, are
a great idea for those on low to
middle-income, and with all state pensions
an extremely safe bet. Whatever happens to
the economy, on a global or local level, you
will receive the payout when it comes to
retirement age. One of the problems at the
moment, however, is that with the expense of
living in the modern world, state pensions
often do not provide enough for people to
live comfortably, even with the State Second
Pension and various benefits, particularly
if they do not own their own home.
It is recommended that you take your own
private pension scheme with a specialist
pensions provider, such as Legal and
General, these allow you greater control,
and also provide you with a pension even if,
like many people, you experience a change of
career – thus meaning that the pension you
had been building with one employer is
broken off. Pensions are very important, and
it is vital that you know what you are
looking for when you start, make sure you do
your research and look around at a number of
different options, because the choices that
you make now will have a profound impact on
the rest of your life.
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