Following months of discussions, the Cabinet Office and the majority of Civil Service unions have agreed the key features of the new Civil Service pension scheme to be introduced in 2015 that will now be recommended to these unions’ executives.
The offer is a modification of the Government’s preferred scheme that was announced on 2 November. The changes make the scheme similar to nuvos, the currently available defined benefit scheme that has been on offer to all staff starting since July 2007 (and which is also a career average scheme).
The main points are:
- A pension scheme design based on career average;
- A provisional accrual rate of 2.28% (equivalent to 1/43.9 and very similar to the rate of the current open scheme, nuvos) of pensionable earnings each year, subject to further agreement on outstanding issues not covered by this agreement
- Revaluation of active(i.e. contributing) members’ benefits in line with the Consumer Prices Index (CPI) (i.e. the pension accrued each year is increased by the CPI);
- a Normal Pension Age equal to State Pension age, which applies both to active members and deferred members (for new scheme service only). The State Pension Age currently ranges from 65 to 68, see http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/DG_4017919 to work out your current State Pension Age;
- pensions in payment to increase in line with Prices (currently CPI);
- benefits earned in deferment to increase in line with Prices (currently CPI);
- Average member contributions of 5.6%, with some protection for the lowest paid (the detailed structure of which is still to be agreed);
- Optional lump sum commutation at a rate of 12:1, in accordance with HMRC limits and regulations;
- Spouses/Partner pension of three-eighths of pension, in line with the current open scheme, nuvos ;
- Lump-sum on death in service of 2 times salary, in line with the current open scheme, nuvos;
- Ill-health benefits in line with those in the current open scheme (nuvos); and
- Actuarially fair early/late retirement factors on a cost-neutral basis. So if you draw your pension early it will be reduced to reflect the longer time in payment, if you draw it later then it is increased to reflect being paid for a shorter time;
- An employer cap to provide backstop protection to the taxpayer against unforeseen costs and risks, as well as the chance for members to improve benefits if the costs of the scheme fall beyond a fixed point. This means that the taxpayer will not be faced with unlimited costs and that members will benefit if the scheme proves to be less expensive than expected; and
- A guarantee that, outside of the scheme designs parameters set out above, there will be no further reform for the next 25 years.
Protection for those close to retirement
As announced on 2 November, for those members who, on 1 April 2012, have 10 years or less of their current Normal Pension Age will see no change to when they can retire, nor any reduction in the amount of pension they receive at their Normal Pension Age. Such members of staff will be able to remain members of their existing scheme up to and including the point at which they draw their pension and all scheme rules current in 2015 (including rules on contribution rates) will apply.
Members of staff who are less than a further 3 and a half years outside this protected group, will be eligible for an additional degree of protection, in the form of further accrual in their existing scheme. This protection will be tapered in a linear fashion depending on their age on 1 April 2012.