SERPS “no good for low-paid”?

July 1 2000

On 10 February 2000, during the Committee stage of the Child Support, Pensions and Social Security Bill, the Pensions Minister Jeff Rooker defended the State Second Pension on the grounds that “Even when it was started in 1978, SERPS was no good for the low paid.”

When SERPS was introduced by the 1975 Social Security Pensions Act, it was designed to provide an earnings-related supplement to the basic state pension. The combined pension (basic plus SERPS) would have been far more generous, even for low-paid workers, than what the present government is proposing. Someone on half average earnings — around £200 a week in today’s terms — could expect a pension of about £120 a week — about £93 basic (reflecting the increase in average earnings) plus £26 SERPS.

If Jeff Rooker thinks that was “no good for the low paid”, he should compare it with his own proposals. By the time the State Second Pension is fully mature, in 2050, the basic pension, linked to prices insteads of earnings, will be about 6 per cent of average earnings (assuming that earnings rise by 2% p.a.) — i.e. about £24 a week in today’s terms. The State Second Pension, for someone on half average earnings, will be about £46 a week, making a total pension of about £70.

Compared with the 1975 legislation, therefore, low-paid workers’ pensions will be about £50 a week lower. They will get £20 a week more from the State Second Pension than they would have got from SERPS, but lose £69 basic pension through the breaking of the earnings link.

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