Pensions Act 2007

Pensions Act 2007

2007 CHAPTER 22

Commentary on Sections

Schedule 1: Part 6: Deemed earnings factors for purposes of additional pension

Section 10: Additional pension: removal of accrual bands from 2010 – 11

187. This section amends Schedule 4A to the SSCBA1992, which contains the rules for the calculation of additional state pension. As the first step towards introducing a flat rate additional pension, the section removes the ‘Band 3’ accrual rate (which is 20%) on earnings factors between the upper earnings threshold and the upper earnings limit currently used in calculating state second pension, starting from the 2010–11 tax year.

188. Subsection (2)(a) restricts the existing 3-band structure to accruals for tax years up to and including 2009-10. Subsection (2)(b) introduces the new two accrual band formulation for the calculation of an individual’s annual surplus earnings factor from 2010-11. A surplus earnings factor for earnings between the lower earnings limit and the low earnings threshold will continue to be based on 40% of relevant earnings. However, surplus earnings factors for any subsequent earnings between the low earnings threshold and the “annual upper earnings limit” will be based on 10% of relevant earnings. Subsection (2)(c) defines the annual upper earnings limit for additional pension purposes.

189. Subsection (3) replicates the provisions of subsection (2) in respect of the calculation of ‘contracted-out’ state second pension entitlement.

190. Subsection (4) replicates the provisions of subsection (2) in respect of the calculation of the amount available by way of top-up for members of an appropriate personal pension scheme (i.e. a contracted-out personal scheme).

191. Subsection (5) defines “AUEL” for the purpose of the amendments in subsections (2) to (4).

192. Subsection (6) amends the heading of Schedule 4A.