The State Earnings-Related Pension Scheme (Serps) is an aspect of the British pension system that can leave some retirees confused about why their payments differ from the standard amount. To make informed financial plans for retirement, it’s crucial to ensure you’re receiving the full state pension you’re entitled to, including any Serps-related benefits.
What Is a Serps Pension?
Serps was part of the old state pension system, which was replaced by the new state pension in 2016. Under the old scheme, pension payments comprised two elements:
- The basic pension, which you could earn through 30 years of National Insurance contributions (NICs).
- The additional pension, also known as Serps, which provided workers an opportunity to earn extra income on top of the basic state pension.
Those who reached state pension age before April 6, 2016, receive their payments under the old system, which may include income from Serps. In contrast, the new state pension has just one payment element based on the total number of NIC years.
How Do Serps Pensions Work?
If you reached state pension age before April 2016, you might already be receiving a Serps payment. For 2024-25, the basic state pension under the old system is £169.50 per week, or £8,814 annually.
The amount you receive from Serps can vary widely. While some may get only a few extra pounds per week, others could receive up to £218.39 weekly, significantly boosting their overall pension income. A pensioner entitled to both the maximum basic and Serps pension could receive £388 a week, or £20,176 annually.
The triple lock system guarantees increases to the basic state pension based on inflation, wage growth, or a minimum of 2.5%. However, Serps payments rise only in line with inflation.
Contracting Out of Serps
It was possible to “contract out” of Serps by contributing more to a workplace or private pension, in exchange for paying reduced NICs. This could lead to a higher retirement income if your private pension investments performed well, though it would reduce the amount received from the state pension.
Workers in the public sector were more likely to have been contracted out, especially if they had final salary pension schemes.
Inheriting a Serps Pension
You may be able to inherit part of your spouse or civil partner’s Serps pension. The percentage you can inherit depends on when your partner passed away:
- If they died before October 6, 2002, you could inherit up to 100% of their Serps pension (a maximum of £218.39 per week).
- For those who passed away after that date, the amount depends on both their date of birth and the date they died. Men born before October 5, 1937, and women born before October 5, 1942, can inherit up to 100%.
Can You Cash In Your Serps Pension?
You cannot directly cash in your Serps entitlement. However, if you were contracted out and directed your NICs into a private or workplace pension, you can access those funds at age 55 (rising to 57 from 2028).
Finding Lost Serps Pensions
If you opted out of Serps and directed your NICs to another pension plan, it’s possible you’ve lost track of those funds. With around 2.8 million lost pension pots valued at £26.6 billion across the UK, this is a common issue.
If you’ve held multiple jobs (the average is 11 during a lifetime), it’s easy to lose contact with some of your pension savings. Fortunately, these pensions are not lost forever. Using your National Insurance number, you can track down lost pensions through the Government’s Pension Tracing Service. This free service provides contact details for pension schemes, helping you reconnect with your savings.
When searching online, be cautious of third-party websites offering similar services, as some charge high fees or engage in fraudulent activities. Always use official channels, like the Government’s free service, to protect your savings.
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