Additional state pension is the second component of the state pension under the system in place before 6 April 2016. It is based on earnings. State earnings related pension (“SERPS”) and state second pension are known as additional state pension.
Band earnings are earnings on which your national insurance contributions are paid. In tax year 2015/2016, band earnings are earnings between £5824 and £42,385.
Basic state pension is the minimum, non-earnings related part of state pension under the old system
“COD” or contracted out deduction is the amount by which your SERPS was reduced because you earned GMP.
“COPE” or Contracted Out Pension Equivalent” is an amount that will be deducted from your state pension under the new system to account for periods in which you were contracted out of the additional state pension and paid lower national insurance contributions as a result.
Contracted out service is time that you were working but you and your employer paid lower NICs because you were earning private pension.
Contributions equivalent premium is the amount the employer or scheme pays back into the state pension system when a contracted out employee leaves a scheme before he or she has enough service to be eligible for a pension from the scheme. In order to be eligible for a pension from the scheme, an employee needed to have five years of service when he or she left service between 1975 and 1987, or two years of service after 6 April 1987.
Foundation amount is the amount of state pension to which you are entitled as at 6 April 2017. You can usually add to this starting amount by continuing to work and pay national insurance contributions. It is the same as the “starting amount”.
GMP is a guaranteed minimum pension payable from your private pension scheme. It is paid from your private scheme because you and your employer paid lower national insurance contributions in exchange for agreeing to take the minimum pension from your scheme instead.
GMP pension age is age 60 for women and 65 for men.
Graduated retirement benefit is an earnings-related state pension that you might have earned if you were employed between 1961 and 1974.
Inflation protection is the way a pension benefit rises in value to take account of inflation. This is also sometimes referred to as “uprating”. For a GMP, different rates of inflation protection will apply depending on whether:
- you are still in contracted out service
- you are not in contracted out service, but under GMP pension age
- You have put your GMP into payment.
Inflation protection before a benefit is put into payment is also called “revaluation”.
Money purchase scheme a scheme in which there is no promise about the amount of income that you will receive in retirement from your pension benefit. In a money purchase scheme, your benefit is invested, and you will be entitled to what can be purchased with that “pot” at retirement.
New state pension, sometimes also called the “single tier state pension” is the state pension system that will be in place starting 6 April 2016. It is called “single tier” because there is just one state pension amount. Under the old system, there are two parts to the state pension: basic state pension and additional state pension. NICs are National insurance contributions.
Protected rights are your benefits that are traceable to extra contributions made to your money purchase scheme because you were contracted out of the additional state pension. They were subject to special rules until 6 April 2012.
Rebate derived deduction is an amount that the Government estimates you would have received from additional state pension if you had not been contracted out. It is subtracted from your additional state pension entitlement under the old system.
Reconciliation is the process of checking a scheme’s records regarding members’ contracted out service against the records held by HMRC.
Reference scheme test is the test of the benefits provided by your private scheme after 6 April 1997 to make sure that those benefits are of a certain value. To pass the test, you must get a pension from your private scheme that is at least broadly equivalent to 1/80th of band earnings with a spouse’s pension of 50% on your death.
SERPS or the State Earnings Related Pension Scheme is the additional state pension that you could earn if your wages were above a certain level between 6 April 1978 and 5 April 2002.
Section 9(2B) rights are rights you earned in your defined benefit pension scheme if you were contracted out of additional state pension after 6 April 1997.
Single tier state pension or new state pension is the state pension system that will be in place starting 6 April 2016. It is called “single tier” because there is just one state pension amount. Under the old system, there are two parts to the state pension: basic state pension and additional state pension.
Starting amount is the amount of state pension to which you are entitled as at 6 April 2017. You can usually add to this starting amount by continuing to work and pay national insurance contributions. It is the same as the “foundation amount”.
State second pension or S2P is the additional state pension that you could earn if your wages were above a certain level between 6 April 2002 and 5 April 2016.
Triple lock is the Government’s promise that new state pension and basic state pension under the old system will rise in accordance with it will rise by the higher of the increase in earnings, increases in prices or 2.5% for the term of the current Parliament.
Uprating is a term sometimes used to describe rises in a pension in payment. Pensions are uprated in line with inflation.