The State Second Pension (S2P) is payable to certain people from state pension age depending on their salary and NI contributions during their working life. S2P replaced the State Earnings Related Pension Scheme (SERPS) in April 2002, so you may receive a mixture of SERPS and S2P benefits at state pension age.  If you have been employed and earned over a certain level (£4,680 in 2008/09) you may be entitled to S2P. S2P also provides benefits for carers, or individuals in receipt of long-term invalidity benefits, who are not in paid employment.

The government allows you to leave the State Second Pension scheme (S2P) if you choose, and this is called ‘contracting out.’ If you decide to contract out, instead of paying towards S2P for the tax years you are contracted out, the government will pay some of your ongoing NI contributions (called rebates) and income tax relief into a personal or stakeholder pension of your choice.  When you reach state retirement age you will only be entitled to SERPS and S2P benefits for the tax years when you were 'contracted in'.

The issues surrounding contracting out of S2P can be quite complicated. You can change your decision each tax year depending on your circumstances. It's best to get more information and advice before making a decision.