How is SERPS calculated?

Working out your SERPS pension requires a complex set of calculations. If you want to get an estimate of your SERPS pension the best way is to get a pension forecast from the Pension Service website.

Even the basic principles are far from straightforward, but this is how it works:

SERPS depends on your income over a maximum of 20 years.

But it does not use your take home or pre tax pay to work out the income part of the equation. Instead it counts how much you were paid above the National Insurance lower earnings limit up to a maximum of the difference between the lower and upper earnings limits.

(These lower and upper earnings figures are an important part of the National Insurance system. If you earn below the lower earnings limit you do not pay National Insurance and, while SERPS was in operation, you did not pay National Insurance contributions on any earnings above the upper limit. For the last year of SERPS the lower limit was £72 a week and the upper limit was £575 a week.)

Each year's income figure is uprated in line with inflation. A maximum of 20 years of these income figures is then used to work out your SERPS pension.  The maximum pension you can receive from SERPS is 25 per cent of your average income (calculated the SERPS way - ie your wage less the lower earnings limit up to a maximum of the upper earnings limit).

Few people will be able to work this out for themselves and it's much simpler to get the Pension Service to do it for you!

There's more about SERPS in the Pension Service guide State pensions - Your guide.