Fundamentally, the State Second Pension (S2P)  works in the same way as SERPS with your pension being based on the average of your revalued earnings(between certain limits) over your working life or the years since 6 April 1978. But S2P has been introduced to address some of them shortcomings of SERPS. Like SERPS, S2P is not open to people who are self employed and you are not building up S2P if you are an employee earning less than the LEL. But S2P does provide pensions for people who cannot work because they are caring for young children or an ill or disabled person and in some cases for people who are themselves ill or disabled.

For now, S2P pensions are also linked to earnings, but low earners, regardless of their actual earnings, and the carers and other groups mentioned above are treated as if they have earnings equal to a low earnings threshold (£10,800 in 2002-3). This has the effect of ensuring the pension they build up is at least a minimum, reasonable amount. Other features of S2P also help people on modest earnings to build up bigger pensions than they would have had under SERPS. The government has indicated that from a date yet to be confirmed S2P may become a flat-rate scheme. You would then be treated as if you had earnings equal to the low earnings threshold with your pension equal to 40 percent of earnings between the LEL and the threshold. This would mean lower pensions for higher earners. But people above a certain age say 45 at the time S2P becomes flat rate are likely to continue building up earnings related pensions rather than being moved to the flat rate scheme. the government is consulting on whether self employed people should be allowed to volunteer to pay higher National Insurance contributions and in return build up S2P.