Some retired people get an extra pension or benefits from the state, as well as their basic retirement pension. What do I need to know about additional state pensions and benefits?

Many people will receive an additional pension from the state on top of the basic retirement pension. There have been various second pension schemes at different times. They include:

• a small graduated pension for those who paid graduated NI contributions between 1961 and 1975 (this is typically less than £3 a week).
• between 1978 and 2002 many people paying NI contributions will have built up something called a SERPS (State Earnings Related Pensions Scheme) pension. Not everyone however will get a SERPS pension from the state when they retire. There are three common circumstances in which you will not have a SERPS scheme:
  • You may have chosen to opt out of SERPS, and instead have nominated a private pension to which the state will have given part of your National Insurance contributions.
  • You may have been a member of an occupational pension scheme that is 'opted out' of SERPS. This allows employees to pay a smaller National Insurance contribution as they are paying contributions to a good occupational scheme instead. 
  • You may have not been earning enough to pay National Insurance contributions.
• In 2002 SERPS was replaced by the State Second Pension, or S2P. The pension you earn from this will be calculated differently from SERPS, but as with SERPS you can individually opt out, or be a member of an occupational scheme that has opted out. S2P is designed to help the lower paid, and also provides some carers and long term disabled people with an additional state pension for the first time.

You can find out more about additional pensions on the Pension Service website and download a pdf State Pensions – Your guide from http://www.thepensionservice.gov.uk/resourcecentre/downloads.asp#planning.

Benefits

Poorer pensioners may also be eligible for a range of additional means-tested benefits and tax credits. Around one third of pensioners today get some form of extra help of this kind. In recent years these benefits and the new credits have become considerably more generous, but of course none are guaranteed to be in place when you retire as governments can, and do, change.

As you cannot rely on the benefits working in the same way when you retire as they do today, we have not gone into the details of current benefits and tax credits. There are better resources available for people who have already retired and we aim workSMART at people in work.

While means-tested benefits will provide help for most people who only have a state retirement pension to live on, many do not like applying for help in this way.

In the past means-tested benefits have caused a further problem. A small additional pension could cut the amount you could claim in means tested benefits. This could make saving for a pension unless you could afford to put by a lot not very worthwhile.

The government has recognised this problem and current tax credits go some way to solve it. Pensioners no longer suffer the same penalties if they have a small occupational or personal pension.

Although you can never rely on the structure of means-tested benefits and tax credits remaining in place over time, it does now make much more sense for most people to build up their own pension.

Another helpful change that came into effect in April 2006 is for people who only manage to save a small pensions pot that would only provide a tiny pension through an annuity. From then, if your pension savings are less than £15,000 you can take it all as a lump sum with 25 per cent tax free.