The Government has today set out significant changes to its proposals for public sector pension reform.
Key elements of today’s proposals include:
- a more generous ‘accrual rate’. This is the rate at which pension entitlement is built up. This has been increased from the 1/65ths offered in October to 1/60ths. This represents an eight per cent increase in generosity on the previous proposal.
- New transitional protection. The Government’s objective is that anyone within ten years of their Normal Pension Age on 1 April 2012 will be protected i.e. they will see no change in when they can retire nor any decrease in the pension they receive at their Normal Pension Age.
Discussions with the trade unions are still ongoing and the individual pension schemes will work with their trade unions to discuss the fairest way of achieving these proposals.
These new proposals mean that while most workers will still have to work longer and pay more, the pension that most low and middle earners, working a full career, will receive at retirement will be at least as good, if not better, than they get now.
What this could mean for you if you are more than ten years away from your pension age
From 2015, your pension could be in two parts:
‘Part 1’ – this is what you will have earned in your current pension scheme up to 2015, based on the current rules. This part of your pension is protected in full – what you have earned so far you will keep and will be paid by reference to your final salary at retirement (not your 2015 salary). Your ‘Part 1’ pension will also reflect your current pension age.
‘Part 2’ – this is what you will earn in your new scheme pension after 2015, based on new rules.
More information about the Government proposals for ‘Part 2’ pension schemes post 2015
- a new accrual rate of 1/60ths – This is the rate at which benefits build up for members of defined benefit schemes. It is commonly expressed as a fraction of pensionable salary for each year (or part year) of pensionable service completed.
- pensions based on career average earnings rather than final salary – your new pension will still be linked to your salary, but instead of linking to your final salary it will be linked to the average of your salary throughout your period of ‘Part 2’ service, from 2015.
- pension to be increased by earnings while in service and by prices after leaving the scheme - Under the preferred scheme proposals, the career average pension earned each year would be uprated in line with general earnings increases while you are in service. After you leave the scheme, pension benefits would increase in line with prices.
- future pension earnings should be linked to the State Pension Age – for most, the new scheme will have a new normal pension age linked to when you can get your state pension. But there is likely to be flexibility in the new scheme. You may still be able to retire earlier if you want, but if you draw your benefits early they will be adjusted accordingly.
The proposed reforms will not change the fact that a Civil Service pension will remain a very effective way to save for your retirement, and a very important element of your overall reward package.
- View the updated Q&A
- See how the changes may affect you using the calculator The calculator previously available here will be replaced by a revised calculator early in the New Year. The calculator showed the Government’s preferred scheme with the 2 November offer. The proposed scheme is different and so the current calculator would give results that are now incorrect.
- Pension reforms leaflet [2 pages, 139KB PDF]