Pensions Guide | Pensions Help Product Information | What If I am an Employee?

If you are an employee, you can choose to build up an additional state pension on top of the basic state Retirement Pension. Up to April 2002, the additional state pension was normally called the State Earnings-Related Pension Scheme (SERPS). SERPS was based on your record of National Insurance contributions and your level of earnings as an employee.

On 6 April 2002, the State Second Pension reformed SERPS to provide a more generous additional state pension for low and moderate earners, and certain carers and people with a long-term illness or disability. (Any SERPS entitlement that has already been built up will be protected, both for those who have already retired and for those who have not yet reached state pension age).

The State Second Pension gives employees earning up to £24,600 (in 2002/03 terms) a better pension than SERPS, with most help going to those on the lowest earnings (up to £10,800 in 2002/03 terms). Generally, if you are on low earnings, it may be better for you to stay in the State Second Pension instead of starting a stakeholder pension.

However, if you are able to save more towards your pension, you may want to think about starting a stakeholder pension. You will get tax relief on the contributions you make.

You should ask your employer if they have an occupational scheme. If your employer does run a scheme, you will generally be better off joining it. Some employers run schemes that you don’t have to pay into at all. For other schemes, you will need to make a contribution.

Occupational schemes often provide extra benefits, such as:

  • a pension or lump-sum payment to your husband or wife if you die early (and sometimes to your partner if you are not married); and
  • a pension if you become ill or disabled and have to retire early.

You should check with your employer to find out what their occupational scheme covers.

Some occupational schemes will also meet the stakeholder standards and will register as stakeholder pension schemes. They will be called ‘employer-sponsored’ stakeholder schemes. If your employer is setting up an employer-sponsored stakeholder scheme, you should find out if the scheme offers any extra benefits.

If you are a member of an occupational pension scheme, new tax rules mean that you might be able to add to your pension provision by taking out a stakeholder pension as well. You should check with your occupational pension scheme to find out if you can join a stakeholder pension scheme as well.