State Pensions

The State pension scheme is designed to provide an individual with a pension that will provide a basic level of income in retirement.

The State pension consists of the following:

• The Basic State Pension.
• Additional earnings related schemes for employees;
• The State graduated pension scheme was the first earnings related scheme. It existed between April 1961 and April 1975.
• The State Earnings Related Pension Scheme (SERPS) replaced the State graduated pension scheme in 1978.
• The State Second Pension (S2P) replaced SERPS on 6 April 2002.

The last part of State pension provision is the Pension Credit, which was introduced in October 2003. The function of the Pension Credit is to ensure that all individuals and couples are provided with at least a minimum level of income at retirement. The Pension Credit is the replacement for the Minimum Income Guarantee (MIG).

State pensions are funded by National Insurance Contributions (NICs). However, there is no underlying fund into which an individual contributes. NICs of the current population are used to provide the retirement benefits for the State pensions of those who have reached State pension age.

Employees (or their employer) can choose not to enter the additional earnings related schemes of the Government. Instead they will receive rebates on their NICs, which are paid into their own pension arrangement or into their occupational pension scheme. However, there is no guarantee that the pension from the rebates will exceed the additional State pension that would have built up. This is known as contracting out.

For more information, please contact us.