# SERPS: What the State Earnings-Related Pension Scheme Means for Your Retirement Published: 2026-02-10 Author: Warren Team URL: https://www.heywarren.com/blog/serps-pension --- SERPS, the State Earnings-Related Pension Scheme, was a UK government pension programme that topped up the basic State Pension with an additional earnings-related component. It was in place from 1978 to 2002, when it was replaced by the State Second Pension (S2P), itself later replaced by the New State Pension in 2016. Many current pensioners and those approaching retirement have SERPS entitlements built up during their working years, making it important to understand what you accrued and how it affects your total pension income. ## What Was SERPS? SERPS was introduced by the Social Security Pensions Act 1975, taking effect in April 1978. It was an additional pension paid on top of the basic State Pension, calculated based on a worker's earnings and National Insurance (NI) contribution history. **The idea**: The basic State Pension provides a flat-rate income floor for all qualifying workers. SERPS added an earnings-related layer, workers who earned more and paid more NI contributions would receive more in retirement. This mirrored the structure of occupational and company pension schemes. **Eligibility**: Any employee who earned above the Lower Earnings Limit and was not "contracted out" accumulated SERPS entitlement automatically through their NI contributions. No separate application or enrolment was required. ## How SERPS Benefits Were Calculated SERPS benefits were based on **revalued career average earnings**, specifically, earnings between the Lower Earnings Limit and the Upper Earnings Limit in each tax year, revalued to today's terms. **Original formula (1978–1988)**: 25% of the best 20 years of revalued earnings above the Lower Earnings Limit. **Reformed formula (post-1988 changes)**: The Thatcher government reduced the accrual rate, ultimately settling at approximately 20% of career average revalued earnings, phased in over the transitional period. The result: a person who worked their entire career at average or above-average earnings could build meaningful additional pension income, potentially £3,000–£10,000+ per year depending on their earnings history. ## Contracting Out One of the most significant SERPS decisions workers faced was **contracting out**: choosing to leave SERPS and instead build up equivalent pension rights in a private occupational or personal pension. ![How contracting out redirected NI contributions away from SERPS into a private pension scheme.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20875%20125%22%20width%3D%22875%22%20height%3D%22125%22%20role%3D%22img%22%3E%3Ctitle%3EFlow%20diagram%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Crect%20x%3D%2230%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22115%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EEmployee%20NI%3C%2Ftext%3E%3Ctext%20x%3D%22115%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3Econtributions%20paid%3C%2Ftext%3E%3Cline%20x1%3D%22205%22%20y1%3D%2262.5%22%20x2%3D%22237%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22244%2C62.5%20235%2C57.5%20235%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22245%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22330%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EContract%20Out%3F%3C%2Ftext%3E%3Ctext%20x%3D%22330%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3Eyes%20%2F%20no%3C%2Ftext%3E%3Cline%20x1%3D%22420%22%20y1%3D%2262.5%22%20x2%3D%22452%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22459%2C62.5%20450%2C57.5%20450%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22460%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22545%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EPrivate%20Pension%3C%2Ftext%3E%3Ctext%20x%3D%22545%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3Ereduced%20NI%20rate%3C%2Ftext%3E%3Cline%20x1%3D%22635%22%20y1%3D%2262.5%22%20x2%3D%22667%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22674%2C62.5%20665%2C57.5%20665%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22675%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22760%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3ESERPS%3C%2Ftext%3E%3Ctext%20x%3D%22760%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3Efull%20NI%20rate%3C%2Ftext%3E%3C%2Fsvg%3E) *How contracting out redirected NI contributions away from SERPS into a private pension scheme.* **Contracted out** workers: - Paid reduced NI contributions (or their employer did) - Built up pension rights in a company scheme or personal pension instead - Gave up their SERPS entitlement for the contracted-out period **Why contract out?**: The incentive was that private pension schemes might generate better returns than the SERPS formula, especially with the investment growth available in defined contribution schemes. **The risk**: Many workers who contracted out into personal pensions in the 1980s found their pension providers offered poor value, leading to the "mis-selling scandal", one of the largest financial services scandals in UK history. Workers who would have been better off in SERPS were incorrectly advised to contract out. ## SERPS Inheritance and Spouse's Pension An important feature: SERPS provides **survivors' benefits**. When a SERPS-entitled individual dies, their surviving spouse or civil partner may inherit a portion of the deceased's additional State Pension. **Inheritance rules** (for SERPS built up before April 2002): - Up to 50% of additional State Pension can pass to a surviving spouse - The exact percentage depends on when the deceased was born and the period of SERPS accrual - This inheritance right makes SERPS entitlement relevant beyond just the individual pensioner ## SERPS vs. State Second Pension (S2P) vs. New State Pension | Scheme | Period | Key Feature | |---|---|---| | **SERPS** | 1978–2002 | Earnings-related; favoured higher earners | | State Second Pension (S2P) | 2002–2016 | More generous to lower earners; flat-rate credits for carers and disabled | | New State Pension | 2016–present | Single flat-rate pension; replaces both basic and additional pensions for new retirees | ![The three successive schemes that delivered earnings-related State Pension entitlements from 1978 to the present.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20800%20149%22%20width%3D%22800%22%20height%3D%22149%22%20role%3D%22img%22%3E%3Ctitle%3ETimeline%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Cline%20x1%3D%22166.66666666666669%22%20y1%3D%2255%22%20x2%3D%22633.3333333333334%22%20y2%3D%2255%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%223%22%2F%3E%3Ccircle%20cx%3D%22166.66666666666669%22%20cy%3D%2255%22%20r%3D%2224%22%20fill%3D%22white%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22166.66666666666669%22%20y%3D%2260%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2215%22%20font-weight%3D%22700%22%20fill%3D%22%230f172a%22%3E1%3C%2Ftext%3E%3Ctext%20x%3D%22166.66666666666669%22%20y%3D%22101%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2212%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3ESERPS%3C%2Ftext%3E%3Ctext%20x%3D%22166.66666666666669%22%20y%3D%22119%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E1978%E2%80%932002%3C%2Ftext%3E%3Ccircle%20cx%3D%22400.00000000000006%22%20cy%3D%2255%22%20r%3D%2224%22%20fill%3D%22white%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22400.00000000000006%22%20y%3D%2260%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2215%22%20font-weight%3D%22700%22%20fill%3D%22%230f172a%22%3E2%3C%2Ftext%3E%3Ctext%20x%3D%22400.00000000000006%22%20y%3D%22101%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2212%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EState%20Second%20Pension%3C%2Ftext%3E%3Ctext%20x%3D%22400.00000000000006%22%20y%3D%22119%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E2002%E2%80%932016%3C%2Ftext%3E%3Ccircle%20cx%3D%22633.3333333333334%22%20cy%3D%2255%22%20r%3D%2224%22%20fill%3D%22%232563eb%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%223%22%2F%3E%3Ctext%20x%3D%22633.3333333333334%22%20y%3D%2260%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2215%22%20font-weight%3D%22700%22%20fill%3D%22white%22%3E3%3C%2Ftext%3E%3Ctext%20x%3D%22633.3333333333334%22%20y%3D%22101%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2212%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3ENew%20State%20Pension%3C%2Ftext%3E%3Ctext%20x%3D%22633.3333333333334%22%20y%3D%22119%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E2016%E2%80%93present%3C%2Ftext%3E%3C%2Fsvg%3E) *The three successive schemes that delivered earnings-related State Pension entitlements from 1978 to the present.* If you reached State Pension age before April 2016, you receive the old-style State Pension, including any SERPS or S2P entitlement you built up. If you reached State Pension age after April 2016, you're under the New State Pension system, which consolidates everything into one amount (but includes a "protected payment" for any additional entitlement above the full New State Pension level). ## How to Find Out Your SERPS Entitlement **Check your State Pension forecast**: The UK government's [Check your State Pension](https://www.gov.uk/check-state-pension) online service shows your projected State Pension, including any additional pension entitlement from SERPS or S2P. **Request a State Pension statement**: HMRC can provide a breakdown of your NI record and projected additional pension amounts. **Pension tracing**: If you believe you contracted out into a private scheme, the government's Pension Tracing Service can help locate records. ## SERPS and Retirement Planning For those who built up SERPS entitlement and reached pension age before 2016, the additional pension is paid automatically alongside the basic State Pension, no separate claim needed. For financial planning purposes: - SERPS income is taxable but not subject to NI contributions - It is guaranteed for life and indexed (certain elements linked to CPI) - It counts as income for pension credit purposes - Unlike private pension drawdown, it cannot be passed on as a lump sum, only the spouse's inherited portion applies For context on how different pension vehicles compare in terms of tax efficiency and retirement income, see our guide on [gold IRA and retirement account strategies](/blog/gold-ira). ## Conclusion SERPS was a significant pillar of UK retirement provision for workers between 1978 and 2002, providing an earnings-related top-up above the basic State Pension. Understanding your SERPS entitlement, and whether you contracted out during any period, is an important part of retirement planning for many UK workers. The scheme's legacy lives on in the protected payments of the New State Pension system, and the surviving spouse inheritance provisions continue to provide value for many retired households. Warren at [heywarren.com](https://heywarren.com) helps individuals understand their retirement income sources, evaluate pension options, and plan for a financially secure retirement. --- ## Related Reading **More from Warren**: - [Gold IRA: What It Is and Whether Precious Metals Belong in Your Retirement Account](/blog/gold-ira) - [Retire Early and Financial Independence: The FIRE Movement Explained](/blog/retire-early-financial-independence) - [Certificate of Deposit (CD): How CDs Work and When to Use Them](/blog/certificate-of-deposit) - [Roth IRA vs. 403(b): Key Differences and Which Is Better for Your Retirement](/blog/roth-ira-vs-403-b) - [What Is the NPV of an Annuity?](/blog/npv-of-an-annuity) **Authoritative sources**: - [UK Government, Check Your State Pension](https://www.gov.uk/check-state-pension) - [Department for Work and Pensions, Additional State Pension](https://www.gov.uk/additional-state-pension) - [Money Helper, State Pension Guide](https://www.moneyhelper.org.uk/en/pensions-and-retirement/state-pension)