A detailed guide to State Pensions for advisers and others

32
What earnings count for additional State Pension?
Earnings between the annual Lower Earnings Limit and the Upper Earnings Limit
in each tax year from 6 April 1978 (or from the tax year in which their 16th
birthday falls, if this is later) until the end of the tax year before the person
reaches State Pension age.
Example
If Eddie reached his State Pension age in June 2008, his earnings between the
tax years from 1978/79 to 2007/08 will count, but for Elwyn who reached his
State Pension age in March 2008, his earnings will count for the tax years from
1978/79 to 2006/07.
Surplus earnings are those earnings above the Lower Earnings Limit (£90 a week
for 2008/09) which is the level needed to qualify for basic State Pension. The
amount of the surplus for each year (except the final year) is revalued in line with
the rise in national average earnings.
• For the period from 6 April 1978 to 5 April 1997 – the surplus earnings of all
employees are counted.
• For the period 6 April 1997 to 5 April 2002 – only the surplus earnings of
employees who are not contracted out of the state scheme are counted.
• For the period from 6 April 2002 to 5 April 2010 – for all employees, for each
tax year the level of their surplus earnings are divided into three bands:
– Band 1 is the surplus earnings above the Lower Earnings Limit and up to the
Low Earnings Threshold;
– Band 2 is from the Low Earnings Threshold to the Upper Earnings Threshold; and
– Band 3 is from the annual Upper Earnings Threshold to the Upper Earnings
Limit. (The UEL is planned to be replaced by the UAP – see page 30.)
• For the period from 6 April 2010 – for all employees, for each tax year the level
of their surplus earnings are divided into two bands:
– Band 1 is the surplus earnings above the Lower Earnings Limit and up to the
Low Earnings Threshold; and
– Band 2 is from the Low Earnings Threshold to the Upper Earnings Limit.
(The UEL is planned to be replaced by the UAP – see page 30.)
Certain groups with no earnings or earnings below the Lower Earnings Limit are
treated as having earnings at the Low Earnings Threshold.
Family Credit or Disability Working Allowance received between 6 April 1995 and
4 October 1999 are counted as earnings if the person reached State Pension age
on or after 6 April 1999.
Working Families’ Tax Credit and Disabled Person’s Tax Credit received between
5 October 1999 and 5 April 2002 are counted as earnings.
Working Tax Credit and Children’s Tax Credit are not counted as earnings.