The Social Security Pensions (Low Earnings Threshold) Order 2005 (SI 2005/217), published today, sets the low earnings threshold (LET) for tax years following 2004/05 at £12,100 - up £500 from the current tax year.

The LET is the amount by reference to which the three surplus earnings bands are determined for the purpose of calculating the additional pension (the state second pension, S2P) in a state retirement pension. Under s.148A(1) of the Social Security Administration Act (SSAA) 1992, in every tax year the Secretary of State has to review the general level of earnings in Great Britain - which in practice means the National Average Earnings Index (Whole Economy, ie not seasonally adjusted) for the period from 1st October to 30th September - and decide on that basis whether the LET should be altered. The Act confers a curious degree of flexibility, such that the LET may not necessarily be increased annually.

During the period from 1st October 2003 to 30th September 2004, the NAE increased by 4.1%. The threshold for 2004/05 was £11,600, by virtue of SI 2004/263. Application of a 4.1% increase gives £12,075.60. SSAA 92 s.148A (4)(b)(ii) prescribes rounding to the nearest £100, hence the new LET is to be £12,100.

The Social Security Revaluation of Earnings Factors Order 2005 (SI 2004/216), commonly known as the s. 148 Order, was also laid today. It specifies the percentages by which band earnings are revalued, in line with the National Average Earnings Index, in order to calculate any accrued SERPS or GMP benefits. The annual s.148 Order is also relevant for revaluing state scheme pension credits and debits. The percentage for tax year 2004/05 is 4.1% (as determined for the LET - see above).

The full Schedule of rates applicable to earners leaving contracted-out employment in 2005/06 (by authority of s. 16 of the Pension Schemes Act (PSA) 1993) is as follows.