State Pensions Measures
Deemed earnings factors for purposes of additional pension
Current position
50.The state second pension was introduced in 2002. It replaced the state earnings related pension scheme to provide a more generous additional state pension for:
employed earners with earnings equal to the lower earnings limit for a full tax year;
carers who have no earnings or earnings below the annual lower earnings limit, in any year throughout which:
they are awarded child benefit for a child under 6;
they are entitled to carer’s allowance; or
they receive home responsibilities protection (paragraph 31 refers);
disabled people with broken work records in any year throughout which they:
receive severe disablement allowance; or
are entitled to long-term incapacity benefit.
51.In addition, those entitled to severe disablement allowance or long-term incapacity benefit must satisfy a labour market attachment condition when they reach state pension age. This condition requires that they have worked and paid Class 1 National Insurance contributions for at least one-tenth of their working life since 1978.
52.Carers and disabled people in these groups are treated as if they have earnings at the qualifying earnings factor (52 times the lower earnings limit) and, along with employed earners who have earnings at the lower earnings limit but below the low earnings threshold, are also boosted to (i.e. deemed to be earning at) the low earnings threshold(3). In other words, these groups are treated as having Band 1 earnings (see paragraph 59) for the purposes of calculating entitlement to state second pension for a given tax year.
53.Employed earners with earnings above the low earnings threshold would accrue state second pension according to their band of earnings (see paragraphs 58-63).
Changes
54.The provisions of this Act will increase the number of people who are deemed to be earning at the low earnings threshold, and so accruing state second pension as if they had Band 1 earnings until the proposed new simplified state second pension is introduced.
55.The changes allow persons to be deemed to be earning at the low earnings threshold for a tax year starting with that commencing 6 April 2010, if they satisfy any of three conditions:
the first is that the person has earnings equal to or greater than the qualifying earnings factor for the year but less than the low earning threshold;
the second is that the person has earnings less than the qualifying earnings factor but is entitled to enough new earnings factor credits to bring his earnings factor up to the qualifying earnings factor;
the third is that a person has no earnings but is entitled to 52 of the new credits for the year.
56.The new earnings credits, of 1/52 of the qualifying earnings factor for the year, are available in respect of each week in which a person was:
awarded child benefit for a child under 12;
a foster parent;
caring for someone with a qualifying disability benefit for at least 20 hours a week; or
entitled to carer’s allowance;
entitled to severe disablement allowance or long-term incapacity benefit. The labour market attachment test would no longer apply to disabled people from 6 April 2010.
57.People earning at or above the low earnings threshold will continue to accrue state second pension according to the band of earnings they are in until the new simplified state second pension is introduced (see paragraphs 58 – 63 below).
£13,000 per annum in 2007/2008