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Reforming European Welfare StatesGermany and the United Kingdom Compared$

Jochen Clasen

Print publication date: 2005

Print ISBN-13: 9780199270712

Published to Oxford Scholarship Online: February 2006

DOI: 10.1093/0199270716.001.0001

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(p.205) Appendix D: Major legislative changes in public pensions, 1980–2003 (UK)

(p.205) Appendix D: Major legislative changes in public pensions, 1980–2003 (UK)

Reforming European Welfare States
Oxford University Press

(p.205) Appendix D:

Major legislative changes in public pensions, 1980–2003 (UK)




  • • Increases in basic state pension (BSP) linked to prices, rather than the greater of prices or wages as previously.

  • • Standard rate of BSP to rise by 11%, making good earlier shortfall.

  • • Earnings rule relaxed for recipients of state pension.


  • • Pension rights of unemployed men aged between 60 and 65 to be secured even if they take low paid work.

1986 (into force in 1988)

  • • Reference years for state earnings related pension (SERPS) to be changed to full lifetime's earnings, rather than best 20 years as previously.

  • • Years without earnings due to incapacity not included in calculation of lifetime earnings.

  • • SERPS to be based on 20% of average earnings (between upper and lower earnings limit) rather than 25% (phased in from 2000–1).

  • • Level of ‘inherited’ SERPS for surviving spouse reduced from 100% to 50% (after 2000).

  • • Contracting out of SERPS becomes permissible for defined contribution schemes and personal pension plans. Additional rebates for setting up new personal pension plans (restricted until 1993). Membership in company pension schemes becomes voluntary.


  • • People of pension age will no longer have to retire to receive public pension.If they continue to work beyond state pension age, their pension will be paid in full (previously reduced for earnings over £75 per week).


  • • Pensions Act 1995 increases pension age of women from 60 to 65 (phased in between 2010 and 2020).

  • • Stricter regulation of personal pension provision. New regulatory body for occupational pensions.

  • • SERPS benefit calculation method changed (in 1999) with effect of reducing pension entitlements.

1997 Labour government

  • • Introduction of Winter Fuel Payments for those over 60 and receiving Income Support and income‐related JSA, or over pension age (60 for women and 65 for men) for other prescribed benefit.


  • • Income Support rates for pensioners increased by 3 times the normal amount.

  • • Income Support for those over 60 renamed ‘Minimum Income Guarantee’ (MIG).

  • • MIG to be raised in line with earnings.

  • • Introduction of ‘stakeholder pensions’.


  • • Increase in the MIG for pensioners, so that lower limit is £6000 and upper limit £12000 from April 2001.

  • • Winter fuel payments increased to £150.

  • • Those earning between the Lower Earning Limit and up to £9500 will be treated as though they had earned £9500 (‘shadow lower earnings limit’).

  • • Carers and disabled people be treated as having earned £9500 (even if earned nothing) for years of caring (under specified conditions).

2001 (into force in 2003)

  • • MIG to be replaced with Pension Credit (PC). PC has 2 parts: the guaranteed income top‐up (GITU) which is the same as MIG; and the Savings Credit, which pays an allowance of 60% for any type of income between the BSP and MIG (GITU) threshold. Where total income is above the GITU level, the credit is reduced at 40% of ‘excess’ income.

  • • Upper savings limit removed.


  • • Introduction of State Second Pension (S2P) to replace SERPS.

  • • New formula benefiting low income earners without non‐statutory pensions (credits top up low earnings and for carers of children under 6 years of age or relatives with a disability; better accrual rates for low earnings). Flat‐rate from 2007.

  • • Amount of SERPS which can be inherited by a surviving partner reduced from 100% to 50%.