The main civil service pension schemes:
classic, premium and classic plus schemes are final-salary schemes with pension age of 60.
classic has a 1/80th accrual rate plus a one-off lump sum of 3 times your annual pension. It closed to new joiners in October 2002 when premium was introduced. The 1/80th accrual rate in classic means that for each year of pensionable service, you build up an amount of pension equivalent to 1/80th of your final pensionable salary.
Premium has a 1/60th accrual rate, but with higher employee contributions than classic, reflecting the more valuable benefits. There is no automatic lump sum, but members can opt to give up (“commute”) some pension in exchange for lump sum.
classic plus is a hybrid – broadly, it provides classic benefits for service up to 30 September 2002 and premium benefits for service from1 October 2002.
Nuvos is the scheme offered to new joiners since 30 July 2007. It is a ‘career average’ scheme with an accrual rate of 2.3% (roughly 1/43) and a pension age of 65. As with premium, there is no automatic lump sum, but members can opt to commute some pension for lump sum.
- If you joined PCSPS before October 2002 you are most likely to be in classic, unless you opted to move to premium or classic plus.
- If you joined between October 2002 and July 2007, you are most likely to be in premium
- If you joined after July 2007, you are most likely to be in nuvos.
There are a number of smaller schemes in addition to these main schemes, and certain members with longer years of service have enhanced rights over how they build up their pension. Some staff have a partnership pension account, which is a defined contribution arrangement.
Key terms:
Accrual rate
The rate at which benefits build up for members of defined benefit schemes. It is commonly expressed as a fraction of final pensionable salary for each year (or part year) of pensionable service completed.
Accrued rights
What you have already earned in your current pension scheme and are entitled to keep.
Added years/ Added pension/ Additional Voluntary Contributions
Extra pension benefits purchased at the employee’s cost. They can be extra benefits in the main scheme (added years or added pension) or investments in a pension fund run by an insurance company (Civil ServiceAVCscheme)
Career average scheme
In a career average scheme, each year you build up a slice of pension based on your salary in that year.
It is a type of defined benefit scheme that builds up benefits each year (or part year) based upon the pensionable salary earned during that year. At the end of each year, each ‘slice’ is increased – typically either to reflect price or earnings increases – nuvos increases benefits to reflect prices. When you finally leave, your total pension is calculated by adding up the slices you have built up (plus increases). It averages the member’s earnings from the whole of their membership period, not just the final years, as happens in a traditional final salary scheme.
Commutation
All schemes allow members to take lump sums up to the maximum allowed by HMRC; under current legislation, these lump sums are tax free. classic provides an automatic lump sum of 3 times pension, but this is less than the HMRC maximum. premium and nuvos do not provide an automatic lump sum. On retirement, members are allowed to “commute” – or give up – some pension in exchange for lump sum. All Civil Service schemes use the same commutation rate of 12:1 – this means that each £1 of pension given up buys £12 of lump sum.
Consumer Price Index (CPI) – see also Retail Price Index (RPI)
An internationally comparable measure of inflation based on structures in international legislation and guidelines and launched in 1996. Like the Retail Prices Index (RPI) it tracks the changing cost of a fixed basket of goods and services over time. However unlike theRPIit disregards some items, such as housing costs. It also has a different population base for the indices from theRPIand a different way in which the index is calculated.
Public service pensions are usually increased in April by reference to the price inflation measure for the previous September.
Defined benefits/Defined benefit scheme
A type of workplace pension where the amount you get at retirement is based on your earnings and years of membership in your pension scheme, and not on stock market investment returns or annuity rates.
Defined contribution scheme
A pension arrangement where the member (and employer) pay contributions into an investment fund The amount in a member’s pension ‘pot’ at retirement will depend upon the investment returns achieved. Retirement income will also depend on the “annuity rate” available when the pension pot is used to buy a pension from an insurance company. There is greater investment risk with defined contribution schemes – unlike defined benefit pensions, you will not know in advance how much pension you will receive at retirement.
Employee contribution
The amount/percentage of your monthly salary you contribute to your pension.
Employer contribution
The amount/percentage of your monthly salary your employer pays into your pension.
Final Salary scheme
In a final salary scheme, your pension is typically worked out as a fraction of your final salary for each year of service. ‘Final salary’ is generally your last 12 months’ pay or your best 12 months in your last few years of service.
For instance, if you are in premium you receive a pension calculated as 1/60th x final salary x years. If you are in classic, you receive a pension calculated as 1/80th x final salary x years. On top of this classic members get an automatic lump sum on retirement of three times pension.
Maximum accrual
The maximum number of years of pensionable service that you can build up. classic and premium allow members to build up 45 years’ service. nuvos members can build up a pension of 75% of pay.
Pension Age
The minimum age specified by the pension scheme at which members are able to retire without pension benefits being reduced for early payment.
Pension benefit
The pension (and lump sum) you receive after your retirement, or your dependents receive after your death.
Pension scheme
An arrangement that provides financial benefits: on retirement having reached a particular age; on death; or in the event of ill-health.
Pension Fund
A pension fund is usually made up of shares and other financial products. The Civil Service pension scheme is not backed by a fund; it operates on an unfunded, pay-as-you-go basis with pensions paid from a combination of member and employer contributions and taxpayer funds.
Pension commencement lump sum/tax free cash lump sum – see also “commutation”
When you retire you can choose to take a proportion of your pension benefits as a tax free cash lump sum .
Pensionable earnings
Those member earnings used by schemes to determine the benefits payable at pension age.
Pensionable service
The time period a pension member is credited as being an active member of the pension scheme which, in a defined benefit scheme, is used in the calculation of that member’s benefits.
Pensioner member
A member of a pension scheme who is receiving pension benefit.
Retail Prices Index (RPI) – see also Consumer Prices Index (CPI)
A measure of inflation and like the Consumer Prices Index (CPI) it tracks the changing cost of a fixed basket of goods and services over time. However, unlike theCPIit takes into account items such as housing costs. It also has a different population base for the indices from theCPIand a different way in which the index is calculated.
Public service pensions are usually increased in April by reference to the price inflation measure for the previous September.
State pension
The core State Pension paid to all who have paid full rate National Insurance Contributions for a specific period or have received contribution credits. It is based on your national insurance contributions or credits fro years when you were not working but doing other things that qualify for earning a credit
State Pension Age
The earliest age you can get your basic State Pension. It is based on your date of birth.
Tax relief
Pension contributions to registered pension schemes attract tax relief. For members of defined benefit schemes, contributions are typically deducted from pay and tax relief is provided by calculating PAYE tax on pay after deduction of pension contributions.
Tiered contribution structure
A method of setting employee contributions so that the percentage of salary contributed depends on what your salary is. The Government has proposed a tiered contribution structure so that lower earners pay a lower contribution rate than higher earners.