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What is a SERPS pension & can I cash it in?

Updated 03 September 2020

4min read

Nick Green
Financial Journalist

SERPS and the Second State Pension

The State Earnings Related Pension Scheme (SERPS) – also known as the ‘additional state pension’ – operated between 1978 and 2002. It was replaced by the State Second Pension, which ran until 2016. The key questions for many retirees are therefore: did I ever opt out of SERPS? If so, how did this affect my state pension? And do I have any SERPS-related pension pots out there that I’ve forgotten about?

What is SERPS pension?

The State Earnings Related Pension Scheme (SERPS) allowed people to increase their state pension income. They could achieve this by building up ‘additional state pension’, based on their level of earnings over their working life.

However, it was possible to opt out of SERPS or the Second State Pension (known as ‘contracting out’) in order to enhance your workplace pension or private pension instead. This means that if you were working between 1978 and 2016, you may have been contracted out for some of this time, if any of your workplace pensions offered this option.

What does contracted out mean?

To be eligible for SERPS, you had to be employed and paying Class 1 National Insurance contributions (it wasn’t available to the self-employed).

Contracting out essentially meant that some of your NI contributions would be re-directed to an alternative pension plan, known as a ‘protected rights pension’. The idea was that this alternative pension would hopefully provide you with a pension pot that was larger than the one you would have received from SERPS.

Some workplace pension schemes would offer you the option of contracting out of SERPS. Others would contract you out automatically. As contracting out of SERPS did not involve making any additional payments, you may not know if you have a protected rights pension or not.

Was I contracted out of SERPS? If so, how do I find my protected rights pension?

You may not be aware of whether your company pension membership meant you were automatically contracted out. It may even be that you chose to contract out while you were a member of a workplace or personal pension, and have forgotten making this decision. Your first task therefore is to find this out. Your financial adviser should be able to help. Find out more about tracking down old pensions.

What is the maximum SERPS pension I can get?

The maximum additional state pension you can get in 2019/20 is £176.41 per week, but not everyone will get this amount, as it depends on factors such as how much you earned and for how long you were contracted in to SERPS.

Can I pay into SERPS today?

SERPS ended in 2002 and was replaced by the State Second Pension (S2P), which operated in a similar way. The S2P ended in 2016 and was replaced by the ‘new state pension’, so you can no longer contribute to SERPS.

How does SERPS affect the state pension I receive?

Whether or not you’ve reached state pension age, the level of state pension income you receive could be affected if you were ever contracted out of SERPS or S2P.

The new state pension was introduced from 6 April 2016. If you reached state pension age before this, you’ll receive the old ‘basic state pension’. You may also be entitled to receive some ‘additional state pension’ – and it’s this amount which may be reduced if you were ever contracted out of it.

If you reached (or will reach) your state pension age after 6 April 2016, then you’ll be eligible to receive the ‘new state pension’ instead. Again, the amount you receive may be lower if you were ever contracted out. (Note that contracting out was no longer possible after 6 April 2012 except for some final salary schemes).

If you would like to increase your state pension because you aren’t eligible for the full amount, possible remedies include:

  • Carry on working past your state retirement age
  • Claim some NI credits – you may be eligible for these if you stopped working for a period, perhaps to raise a family or because of illness

Can I inherit a SERPS pension?

The SERPS inheritance rules allow you to receive a significant additional income if your spouse or civil partner has passed away.

The current rules allow you to receive between 50 per cent and 100 per cent of your spouse’s SERPS pension:

Man’s date of birth

Woman’s date of birth

Amount that can be inherited

5/10/1937 or earlier

5/10/1942 or earlier

100%

6/10/1937 to 5/10/1939

6/10/1942 to 5/10/1944

90%

6/10/1939 to 5/10/1941

6/10/1944 to 5/10/1946

80%

6/10/1941 to 5/10/1943

6/10/1946 to 5/10/1948

70%

6/10/1943 to 5/10/1945

6/10/1948 to 5/10/1950

60%

6/10/1945 or later

6/10/1950 or later

50%

So if your spouse is a woman and she was born on October 5 1942, you can inherit all of her SERPS pension when she dies. If your spouse is a man and he was born on October 6 1945, you can inherit 50 per cent of his SERPS pension when she dies.

You can’t inherit a spouse’s SERPS if you re-marry or form a new civil partnership before your state pension age.

You can only inherit a maximum of 50 per cent of the S2P.

Can I cash in my SERPS?

You can’t ‘cash in’ your SERPS. The additional state pension is only ever paid along with your basic state pension, usually directly into your bank account. The income is guaranteed for life, meaning it will never run out.

You may be confused if you have read elsewhere about ‘cashing in’ a SERPS pension. This however refers to protected rights pensions (i.e. the pension pot(s) that you’ll have if you ever opted out of SERPS or S2P). You can access a protected rights pension like any other defined contribution pension pot, from the age of 55.

Some people will lazily refer to protected rights pensions as ‘SERPS pensions’ and talk about cashing them in. It’s important to understand that this refers to the pension pot(s) you have built up by not being in SERPS, rather than SERPS itself.

Find out more about how pensions work.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.