1.3.3 State Second Pensions (S2P)

• The Government has now discontinued SERPS accrual and replaced it with a new secondary state pension called the State Second Pension (S2P) with effect from 6th April 2002.

• The intention is to provide a greater state pension for lower paid employees. Those earning less than the lower earnings threshold are treated as if they earn the lower earnings threshold. Carers, and in some circumstances, those with disabilities are also treated in this way.

• S2P operates in 2 phases, phase 1 lasting for 5 years. During the first 5 years the S2P is earnings related. Earnings are split into 3 bands to calculate the pension amount.

  Band 1 40% of earnings between the Lower Earnings Limit (LEL) and the Lower Earnings Threshold (LET). Employees and other defined individuals earning at least the LEL but less than the LET are treated as if they earn the LET.

  Band 2 10% of earnings between the LET and the Upper Earnings Threshold (UET).

  Band 3 20% of earnings between the UET and the Upper Earnings Limit (UEL).

  For 2004/05
  Lower Earnings Limit (LEL) = £4,108
  Lower Earnings Threshold (LET) = £11,600
  Upper Earnings Threshold (UET) = £26,000
  Upper Earnings Limit (UEL) = £31,720

• Under S2P nobody is worse off than under SERPS. Those earning below the LET receive at least twice the benefit they would have received from SERPS.

• During phase 2 the S2P will be calculated on a flat rate for those aged under 45 at the time but will continue to be earnings related for older individuals.

• During phase 2 the scheme is aimed at those earning less than the LET. No pension will accrue in respect of earnings over the LET for those aged under 45.

• It is possible to contract out of the S2P via occupational pension schemes, personal pensions and stakeholder pensions (either individual or group).