Annex A: Glossary of Pension Provision Additional Pension  (SERPS and the State Second Pension)
8.The additional pension element of Category A and B retirement pensions (commonly called the State Earnings Related Pension Scheme or SERPS until 2002) is payable to people, or in certain circumstances their widows or widowers, who have paid, or are treated as having paid, Class 1 National Insurance contributions. The relevant legislation is sections 43 to 55 of the Social Security Contributions and Benefits Act 1992.
9.The additional pension is based on an average of earnings between the National Insurance lower and upper earnings limits over a person's whole working life, and the amount of that pension is increased in line with earnings inflation up to state pension age, and by price inflation once it is in payment.
10.From 6 April 2002, the State Second Pension reforms additional pension to provide a higher pension for low and moderate earners. In addition, for the first time, certain carers looking after young children, or a sick or disabled person, and long-term disabled people with broken work records will also be able to build up an additional pension.
11.People earning between the National Insurance lower earnings limit and a new low earnings threshold will be treated for additional pension purposes as if they had earned at the low earnings threshold. Qualifying carers or disabled people who earn less than the lower earnings limit (or nothing at all) will also be treated for additional pension purposes as if they had earned at the low earnings threshold in any qualifying year. A new accrual rate, which is twice the current rate, will apply to earnings (actual or treated) up to the low earnings threshold.
12.In total, some 18 million people stand to gain from the State Second Pension reforms - 14 million low and moderate earners, over 2 million carers and 2 million disabled people.
13.People can be contracted out of the additional pension into an occupational pension scheme or appropriate personal pension (including stakeholder pensions). Those contracting out into an occupational pension pay a reduced rate of National Insurance contributions. Those contracting out into an appropriate personal pension or a stakeholder pension pay full rate National Insurance contributions, but the Inland Revenue pay a rebate of National Insurance and tax relief directly to the pension provider.  From April 2002 people contracted out  are no worse off than they would have been had they remained in the state scheme because they will receive the extra help given to low and moderate earners by the State Second Pension by a combination of enhancing National Insurance rebates and topping up their additional pensions.
14.Some 5.5 million people currently receive an additional pension as part of their retirement income at an annual cost of about £4 billion. The Government Actuary reviews the level of rebates at least every five years.