Calculating State Second Pensions

If you earn £4,524 or more (in 2007/2008) then your S2P will be calculated as a series of percentages based on where your earnings fall on the earnings scale set out by the government, see The Earnings Scale. Using this earnings scale the S2P is calculated as shown below for earnings in the tax year 2007/2008:

If you are earning more than the LEL but less than the LET, you will be credited as having earnings equal to the LET. This means that if you earn only £10,000 in 2007/2008 you will be credited as having earned £13,000 and be entitled to S2P based on that amount, that is, forty percent of £8,476 (LET of £13,000 – LEL of £4,524 = £8,476), which is £3,390.40 S2P a year or roughly £65 S2P a week. If you earn £20,000 a year, you are entitled to forty percent of your earnings which fall between the LEL and LET, and ten percent of your earnings which fall between the LET and UET:

You will be entitled to £4,090.40 of S2P each year, roughly £78 a week, using the current earnings scale values for 2007/2008. The S2P that you receive on retirement will be based on your average lifetime earnings. There is a maximum amount of S2P that a person can receive, which is currently £148.14 a week for 2007/2008.

If you are not employed, or earning less than £4,524 (in 2007/2008) but you were ill or acting as a carer throughout the tax year, and are entitled to long-term Incapacity Benefit or are recognised as a carer, you may also be entitled to build up S2P. Currently people in such circumstances are entitled to build up £1 of S2P a week for every full tax year spent ill, disabled, or being a carer. There is no limit to the number of years you can build up S2P in this way. However, if you are ill or disabled you must pass the Labour Market Attachment Test before you receive your S2P. This ‘test’ means that you must have paid class one N.I. contributions for one tenth of your working life by the time you reach State Pension age, or you will not be entitled to S2P.

Your State Second Pension might be calculated according to the different rules, percentages, terms and conditions of the various different past and present forms of State Second Pension, depending on when you began paying National Insurance contributions. You may receive a State Second Pension which is a combination of SERPS and S2P. However, there are measures in place to ensure that no one will be worse off under S2P than they would have been under SERPS, so you will not be at a disadvantage because the schemes have changed. The best way to estimate how much State Second Pension you will receive is to look at your pension forecast (see Calculating Retirement Income), or ask the Pension Service for advice by telephoning their helpline on 0845 60 60 265.