© Institute for Fiscal Studies, 1999 The Proposed State Second Pension

The UK government has recently proposed radical changes in second-tier pension provision, with the existing State Earnings-Related Pension Scheme (SERPS) being replaced by a new State Second Pension (SSP). This paper sets out how the proposed scheme differs from its predecessor and describes the distributional effects of this reform. It shows that the SSP greatly increases the pension entitlements of low earners while maintaining existing benefit levels for higher earners. However, the higher contributions needed to pay for the new scheme mean that, after taking financing into account, people earning more than around £12,000 a year will lose out. Because of the upper limit to National Insurance contributions for employees, these losses will be greatest for people earning at the contribution ceiling. JEL classification: H55. I