The formulae for calculating the S2P pension built up over a working life is complex and weighted towards low earners. For example, based on 2011/12 figures, the theoretical maximum S2P figure based on membership from age 16 to SPA is currently:
| Earnings £ per year |
S2P £ per year |
| Less than 5,304 | Nil |
| 5,304 - 14,400 |
3,638 |
| 20,000 |
4,198 |
| 30,000 |
5,198 |
| 40,040 or more | 6,202 |
S2P pensions in payment will now increase in line with the consumer prices index (CPI). Previously increases had been linked to the retail prices index (RPI). This change could make a substantial difference in the long term. For example, in April 2011 S2P pensions will rise by 3.1%, based on the CPI to September 2010. Had the corresponding RPI figure been used, the increase would have been 4.6%.
The future of S2P
In recent years, S2P has been subject to several major changes. The overall result is that eventually – by around 2040 based on current earnings growth – S2P is due to become a purely flat rate scheme producing a pension equivalent to around £3,600 a year in today’s terms. In practice this long-term transformation looks unlikely to happen. In April 2011 the Department for Work and Pensions released a Green Paper on the future of state pensions which proposed either the abolition of S2P or bringing forward to 2020 the point at which S2P becomes flat rate.Last Updated
