Questions and answers
This is a lengthy list of questions and answers, so we've broken them down into 7 categories.
- Balloting details
- Recommendation to vote 'yes'
- New benefit structure from April 2015
- Additional contributions for added years and added pension
- Employer cost cap
Q. What is this ballot about?
A. A ballot is being held about the government's proposals for the pension schemes to apply for most public servants from April 2015. In particular this ballot applies to members of the civil service and by-analogy pension schemes, and the NHS and teachers' pension schemes. Members of the local government and UK Atomic Energy Authority pension schemes will be subject to separate ballots when proposals for these schemes are finalised. You can download the proposals for the civil service and by-analogy schemes (eg House of Commons, Research Councils). Separate information is being provided for members in the NHS and teachers' schemes.
Q. Why are we not being balloted on the increase to member contributions from April 2012?
A. There is no agreement between Prospect (or any trade union) and the Government on increases to member contributions from April 2012. The Government is imposing these extra contributions. Prospect and other trade unions representing public servants are opposed to this unfair levy on members of these schemes.
Q. If there is no agreement between Prospect (or any trade union) and the Government on increases to member contributions from April 2012 how can the government legally make such a deduction from my salary?
A. Prior to making any changes to the Civil Service Pensions scheme(s) the government has an obligation to consult. Unfortunately there is little corresponding obligation to be compelled to act on outcome of the consultation. Whilst the employer is obliged to provide a pension as part of the agreed terms and conditions, employees are not obliged to be a member of the scheme. Therefore a legal challenge against increases in contributions is likely to fail. The courts are likely to conclude that the remedy in such circumstances is that if the employee believed the proposed increases were unacceptable they could opt out of the pension scheme. For the individual member this is not likely to be a choice they would want to make.
Q. How will the ballot be conducted?
A. The ballot will mostly be conducted online for members we have an email address for. For members who are not contactable by email or who are known to have restrictions on internet access from their workplace, we will conduct the ballot by post.
Q. When will the ballot take place?
A. The ballot will run from April 24 to May 11.
Q. Is Prospect coordinating with other trade unions?
A. Yes, throughout this process Prospect has worked closely with trade unions across the public sector through the TUC.
In the civil service discussions we have sought to work with all the recognised civil service unions. It became apparent at the later stages of the negotiations that the approach taken by PCS and Unite was markedly different from Prospect and the FDA, GMB and Unison. We have continued to work with the FDA,GMB and Unison to conclude the negotiations The other significant civil service union, the Prison Officers Association, remains in talks. All of these factors were considered by the Executive in making its recommendation. We continue to keep in touch with developments in the other public sector schemes through the TUC.
Q. Is there a recommendation on how to vote in the ballot?
A. The elected representatives in the Civil Service sector decided to recommend that members vote 'yes' in the ballot.
Q. Why is there a recommendation on how to vote?
A. The elected representatives on the Civil Service Sector Executive felt it was important to provide some leadership to members in making their decision. The members of the Civil Service Sector Executive have been close to the discussions with the Government on public service pension reform and have thoroughly considered the consequence of accepting or rejecting the proposals. Regardless of the recommendation the decision to accept or reject the proposals is ultimately for members.
Q. Why is Prospect recommending that members vote 'yes' and accept the proposals?
A. The Executive considered a number of complex factors in coming to their decision to recommend a 'yes' vote.
The proposals are being recommended as the best achievable through the action taken and negotiations conducted to date.
There are many features of the proposals that the Executive did not approve of and would have preferred to improve on. However it is important to note that the terms of the pension scheme to apply from April 2015 (ie the issue being balloted on) have greatly improved on the government's original position and are much closer to the current Nuvos scheme. Nuvos is a high quality Career Average Scheme introduced in 2006 following a ballot of members and agreed with all Civil Service Unions.
It is important that all members take the time to understand the impact of the proposals on their own pension in retirement. Prospect's material supporting the ballot is intended to allow members to do that. The Executive believes that there are a significant number of aspects to the pension benefits that can be accrued from April 2015 that are beneficial to members.
The consequences of rejecting the proposals through a 'no' vote were also considered closely by the Executive.
If Prospect members vote 'no' to the Government's proposals it will not be possible to achieve improvements through negotiations alone. This means further industrial action will be required in an attempt to bring the government back to the negotiating table. That action would have to be more than a single day's protest action; many days' industrial action will be required to make an impact. It would not be as broad as that on 30 November as many of the unions that took part then are in different schemes with separate negotiations. Some are now recommending the proposals to members in ballots. Obviously, therefore, participation in further industrial action on pensions depends on those ballot outcomes.
Finally the Executive considered the likely Government response to a 'no' vote. The first paragraph of the Government's proposals states that, "If the proposals do not gain support from a sufficient number of Trade Unions, the Government reserves its position on all aspects of this proposed scheme design." In other words: we do not have the luxury of rejecting these proposals by voting 'no' and also hoping that the Government imposes them anyway. If Prospect members vote 'no' the Government may choose to impose worse terms. In particular consider removing the protection for those close to pension age, or the protection for members under threat of privatisation or undoing some of the improvement in the accrual rate for the new schemes.
On balance the Executive is recommending that members vote 'yes' because they feel it would result in the best outcome for members in the circumstances.
Q. The offer makes it clear that "If the proposals do not gain support from a sufficient number of Trade Unions, the Government reserves its position on all aspects of this proposed scheme design." As PCS have rejected the proposals and Unite are balloting to reject them what guarantees does Prospect have that a 'yes' vote from them and the other unions will result in an agreement?
A. The government will not be drawn on what it means by 'a sufficient number of unions'. Prospect does not have, nor has it sought, any guarantees from the government prior to the conclusion of any ballot and those of all of the other Civil Service unions. When we know the outcome of the ballot we will seek to act and deliver on the views expressed by Prospect members.
The outcome(s) across the rest of the public sector will also influence our own and the government's actions.
Q. Am I agreeing to higher pension contributions by voting 'yes'?
A. Yes, for the contributions increases from April 2015, these form part of the overall proposals and are an integral part of the revised proposals, the average contribution rate from 1 April 2015 set at 5.6%.
However, the Government is imposing additional member contributions from April 2012 (and from April 2013 and April 2014); these changes are not part of this ballot. Prospect continues to oppose these increases as they have nothing to do with fairness or the sustainability of public service pension schemes. These increases in member contributions are an unfair tax on public servants that have a direct impact on take-home pay. The increases also have to be considered in relation to the public service pay curbs being imposed at this time and the impact on members' living standards. Prospect will be building a campaign on public service pay regardless of the outcome of the ballot on the Government's proposals for pensions from April 2015.
Q. Am I agreeing to CPI indexation by voting 'yes'?
A. The Government's proposals involve pension being increased before and after retirement in line with the Consumer Prices Index (CPI). There are two aspects regarding the use of CPI as part of current and future pensions arrangements, Prospect, along with a number of other organisations, challenged the government's decision to switch the future indexation of pensions from RPI to CPI. This affects pensions in payment and in Nuvos the rate at which the accrued pension is re-evaluated . That case, and its subsequent appeal, failed. Along with all the other organisations involved in the action we have concluded that no future legal action will be taken on this issue.
Future pensions in payment and the uprating for pensions in the career average scheme Nuvos will be CPI. CPI is also part of the indexing and re-evaluation of benefits in the new scheme. This is part of the new scheme design using CPI which delivers a higher accrual rate of 1/43.1th
Prospect will also continue efforts to ensure that any unjustifiable differences between the RPI and CPI measures of inflation are eliminated. This work will continue regardless of the outcome of the ballot on the pension proposals from April 2015.
Q. Why did we take action on 30 November if you are recommending proposals that involve "paying more, working longer and getting less"?
A. The action on 30 November, and in particular the strong support from Prospect members for that action, had a significant impact on shifting the Government's proposals for public service pensions. Ahead of 30 November, calling the day of action resulted in the Government announcing protection for members within 10 years of pension age and an improvement in the value of the new pension terms of 8%. Simply put, the impact of the action on 30 November on people's income in retirement will be far more significant than the loss of pay incurred through participation in the action.
Negotiations since 30 November have resulted in additional progress in areas such as flexibility in drawing pension, protection on privatisation and improvement in the risk-sharing proposals.
However it is clear that the negotiations and action taken to date have not addressed all the points that Prospect members voted to take action on.
The Government has imposed contribution increases on members from April 2012. Members are paying more. Prospect has not accepted these higher contributions and will continue to campaign to offset the impact on members' take-home pay regardless of the outcome of the ballot.
The Government has also not moved on its intention to set normal pension age as State Pension Age (currently up to 68). However it is important to note that members will not be required to work to their State Pension Age, they can draw their pension before then if they choose.
An important feature of the proposals being balloted on is the level of pension that members will earn from the new scheme after April 2015. While the scheme is career average and has a higher pension age it also has a more generous accrual rate (the rate at which pension is built up) than the existing Nuvos scheme. This better accrual rate can mean that many people get a higher pension at the same age as they would have if they retired under the current arrangements. Therefore it is not necessarily the case that members will have to “work longer” or “get less”.
The level of pension that members earn at different ages will depend on a number of assumptions. It is important that members use the calculators and / or look at the examples to understand what the impact might be on them.
Q. What protection is offered under the Government's proposals?
A. There are various forms of protection offered to different groups of members in different circumstances.
All pension earned by all members up to April 2015 is protected. Both the amount of pension and any link between that pension and final salary on leaving the civil service are protected.
In addition, there is further protection for those who are within 10 years of pension age (ie over 50 for members of Classic, Classic Plus or Premium or over 55 for members of Nuvos) on 1 April 2012. These members will retain their current pension provision for the rest of their career in the civil service.
For people who just miss out on the protection beyond April 2015 described above there is tapered protection for those within a further 3.5 years of pension age (ie between 10 and 13.5 years of pension age) on 1 April 2012. This tapered protection is detailed in Annex A to the Governments proposals but generally means that members will have the right to stay in their current scheme for an extra period of between 3 months and up to 7 years beyond April 2015.
Finally there is additional protection for members who may be privatised or contracted out of the public service in the future. New rules will allow members in this situation to retain membership of their public service pension scheme.
Q. Will my pre-April 2015 pension be based on my salary at April 2015 or my salary when I finally retire?
A. Any final salary pension accrued before April 2015 will be based on final salary on leaving the scheme (whether on retirement or resignation) rather than salary on April 2015.
Q. How will final pensionable salary for my protected service be calculated?
A. It will be calculated in line with the rules of the current section of the scheme that you are in, there will be no change to how it is currently calculated.
Q. I am over 50 / 55 on 1 April 2012, do I go into the new scheme when I reach 60 / 65?
A. No. The protection applies for as long as you stay in employment, you retain membership of your current scheme even if you work past normal pension age.
Q. I am over 50 / 55 on 1 April 2012 but I think I would be better off under the new pension arrangements, can I choose to go into the new scheme?
A. No. The protection for members within 10 years of pension age means they keep their current pension arrangements regardless of whether the higher accrual rate means that they might have been better off in the new scheme.
Q. I am over 50 / 55 on 1 April 2012, can I choose to work beyond my scheme's normal pension age of 60 / 65?
A. Yes. Members can choose when to retire at a time that suits them, subject to their health and effectiveness being assessed as OK. Members with short service, for example, may want to work beyond NPA to increase their pension entitlements. Those in Classic may want to work on to accrue their maximum 45 years of entitlement.
Q. I am over 50 / 55 on 1 April 2012, do I have to pay the extra member contributions from April 2012?
A. These extra contributions are simply an additional tax on public servants and the government is insisting all members earning above £15,000 pay them.
Q. I am between 10 and 13.5 years from normal pension age on 1 April 2012 and can therefore choose to apply for tapered protection, will Prospect help me understand the factors I need to consider in making this choice?
A. Yes. Prospect will produce material for these members before the decision needs to be made.
Q. Why has Prospect prioritised protection for older members; is this not age discriminatory?
A. Prospect has fought hard for the best terms for all members. The protection for those within 10 years of pension age was part of the improvement offered by the Government in response to the day of action on 30 November, at the same time the accrual rate for the post-April 2015 pension was improved leading to an increase in value of benefits for non-protected members of 8%. It makes sense that those closest to pension age, who have the least opportunity to revise plans for retirement, are exempt from dramatic changes in their expected pension. Pension terms that depend on age can be age discriminatory but are often exempt from challenge or justifiable under age discrimination regulations.
Q. My department is under risk of privatisation, when will the change to allow people to retain membership of the civil service pension scheme after privatisation come into effect?
A. This depends on the speed of legislation and also on the outcome of the ballot. If there is a 'yes' vote from members then Prospect negotiators will push the Government to make the necessary changes to allow continued membership of the PCSPS and by-analogy schemes as soon as possible. Unfortunately it is not possible to say when the changes will be implemented due to the uncertainty associated with the Parliamentary process.
Q. Is there a guarantee that the scheme will not change again for 25 years?
A. On 2 November 2011 the Chief Secretary to the Treasury told Parliament that there would be no need for changes to the scheme (outside the processes agreed for the cap on employer costs) for 25 years. This guarantee will be legislated for in the Bill bringing forward the Government's proposals but the details on the wording are not yet available.
Q. Am I agreeing to higher pension contributions by voting 'yes'?
A. Yes, but only for the contributions increases from April 2015. These form part of the overall proposals and are part of the proposed new scheme; the average contribution rate from 2015 is 5.6%
However, the Government is imposing additional member contributions from April 2012 (and from April 2013 and April 2014 as well). These changes are not part of this ballot. Prospect continues to oppose these increases have nothing to do with fairness or the sustainability of public service pension schemes. These increases in member contributions are an unfair tax on public servants that have a direct impact on take-home pay. The increases also have to be considered in relation to the public service pay restraint being imposed at this time and the impact on members' take-home pay. Prospect will be building a campaign on public service pay regardless of the outcome of the ballot on the Government's proposals for pensions from April 2015.
Q. What are the higher contributions from April 2012 for?
A. The contribution increases that members earning over £15,000 have to pay from April 2012 are not required on the grounds of sustainability or fairness. They are simply an additional tax on public service workers who have to contribute an extra £2.8 billion per annum as a contribution towards the fiscal deficit targets.
Q. Do I pay the appropriate contribution rate on all my earnings or do I pay the rate for each band on the earnings in that band?
A. Once you move into a new band of earnings you pay the rate appropriate to that band on all your earnings.
Q. Does the requirement to pay the appropriate rate on all earnings, even if members fall just within a higher band, introduce huge unfairness and disincentives in the earnings scale?
A. Yes. Prospect made this point in its response to the Government's consultation on the increases to apply from April 2012. The Government did not amend its proposals. However there are fewer bands from April 2015 and they will be aligned more closely to the tax regime meaning this effect will be reduced as far as possible.
Q. Why does the band of earnings that determines the extra contribution based on full-time equivalent earnings, does this not discriminate against part-time workers?
A. This was another issue raised by Prospect (and many members) in response to the Government's consultation on increases to apply from April 2012. We are aware that the Cabinet Office considered this point very carefully. In the end the decision was made to apply the additional rate determined by full-time equivalent earnings. The legal advice that we have received is that this position is probably more justifiable than the alternative approach of applying the rate determined by actual earnings. Indeed the approach of using full-time equivalent earnings has been used in other large public service schemes (eg the NHS and teachers' schemes) for some years now without challenge. We will be raising the impact on part-time workers in the course of work on the Equality Impact Assessment that the government committed to during negotiations.
Q. The literature makes reference to the net impact of the contribution increases based on the tax rates that apply to certain bands of earnings, however I work part-time and fall in a lower tax band and therefore the net impact is higher on me, is this fair?
A. This is a feature of the system that will apply in certain circumstances. It is not fair as we have tried to equalise the impact on net contributions as far as possible however it was not possible to construct a system that would have been fair to everyone in all circumstances.
Q. The Government recently announced a reduction in the top rate of income from 50% to 45%, will this have an impact on contribution rates?
The precise rates to apply from April 2015 will be subject to a joint review by the Government and trade unions. This will reflect experience following the initial increases in April 2012 and also allow for any significant changes to the tax regime that might alter the net impact of the proposals.
Q. Why are the contributions higher for those with higher earnings from April 2015, when the benefits are career average rather than final salary there is no need to allow for the fact that final salary schemes tend to benefit higher earners more?
A. The alternative to the tiered contribution structure post April 2015 was a flat contribution rate of 5.6% for all members. This would have involved significant increases and decreases as members would have been paying contributions ranging from 1.5% to 9.5% in March 2015. The proposed structure is more manageable as it reduces the scale of any increases in contributions that will apply from April 2015 (though it also reduces the scale of any decreases in contributions). The structure was also chosen to use the tax relief at varying levels to equalise the position on a net of tax basis.
Q. I am in the Classic scheme and if I am not married or in a civil partnership I will be refunded my contributions when I draw my pension, will I be refunded the extra contributions payable from April 2012?
A. No, only the 1.5% original Classic contributions will be repayable. The extra contributions are a tax towards paying off the fiscal deficit.
Q. I am currently paying the maximum allowable 'added years' contribution such that my total contribution is 15%, what will happen when the higher contributions come into effect from April 2012?
A. There is no maximum contribution of 15% any more, the additional contributions will be payable as for anyone else in the same band of full-time equivalent earnings.
Q. I am within 10 years of pension age and will be staying in my current scheme, why do I have to pay a higher contribution rate from April 2015?
A. The higher contributions are not required on sustainability or fairness grounds; neither are they related to the new benefit structure from April 2015. However, the government insisted throughout the negotiations that existing contributions had to increase, so all members who continue to be members of the Civil Service Pension Scheme (CSPS) from 2015 will pay an average of 5.6%.
Q. What are the contribution rates paid by members of other public service pension schemes?
A. The other main schemes that have final proposals are the NHS schemes and Teachers' schemes. The average contribution rates are 9.8% and 9.6% respectively. The lower average contribution rate for members of the civil service scheme is historically related to the lower pay in this sector.
Q. It is stated that the contribution increases in April 2013 and April 2014 will be reviewed in consultation with trade unions. What will this review cover?
A. The Government has already set out the increased yield it requires from the overall contribution increases in April 2013 and April 2014. These were outlined in Treasury documents. The Government intends the review to only cover how best to achieve this required yield taking into account behavioural responses to the increase in April 2012 and the contribution rates anticipated to apply in the new scheme from April 2015. Clearly the Government does not intend this review to be able to re-open the question of the level of contribution increases in April 2013 and April 2014. However Prospect is clear that those increases (along with the increase in April 2012) are not agreed and will be pushing to reverse them and / or campaign for compensating pay increases.
Q. I do not qualify for the protection; I will be accruing pension under the proposed benefit structure from April 2015, how do I find out what the effect will be on me?
A. This is obviously a key issue in assessing the proposals you are being asked to vote on. Prospect will be developing calculators, examples and other information to help you assess the impact of the proposals on your own pension provision. It is important that you take the time to assess what the impact will be as the result of the ballot could make a huge difference to your standard of living in retirement.
Q. What are the pension benefits that will apply from April 2015?
A. These are set out in the Government's offer letter. The main features of the post April 2015 pension proposals are:
- Pension Age set at State Pension Age
Pension age is the earliest age you can draw an unreduced pension. Currently it is 60 or 65 for most public sector workers (depending on the scheme they are in and the date they joined). Pension age will be set at State Pension Age in the new scheme. State Pension Age is currently up to 68 but it may increase even further in the future if life expectance continues to improve. You can find out your State Pension Age under current regulations from the calculator below, please not that the Government has announced that the increase to 67 will be brought forward and will now be phased in between April 2026 and April 2028, this change has not been legislated for yet and is therefore not allowed for in the calculator.
It is important to note that you are not required to work until your State Pension Age, you can retire and draw your pension before this age but with the application of a fixed actuarial reduction for each year below the SPA, where you have not been able to benefit from the opportunity to buy out that reduction.
The main determinant of when a member draws their pension is likely to be when the resultant benefit provides for an income in retirement that is deemed sufficient.
- Career average benefits
Pension is based on average salary throughout the career rather than salary at the time members leave the scheme. Generally career average schemes are considered to be fairer than final salary schemes. Indeed Prospect argued strongly in favour of career average schemes when Nuvos was being designed for new entrants from July 2007.
- Revaluation in line with CPI
Revaluation refers to the rate at which the pension built up any year is increased until the date it is drawn at. If someone accrues £500 pension in a year then this will be increased by the revaluation rate every year until the pension is drawn (eg £500 pension accrued when the member is 55 will be worth £609 if drawn at age 65 and the revaluation rate averages 2% per annum in the interim). CPI is the same rate of revaluation that currently applies to the Nuvos scheme (though this was RPI before the Government switched the inflation index it uses for most pension purposes).
- Pension increases in line with CPI
Pension increase is the rate that pensions go up when you have retired in order to maintain their real value as the cost of living increases. As with revaluation, CPI is the measure of inflation the Government currently uses to increase pensions in payment, but this change was only introduced from April 2011.
- Accrual rate
Accrual rate is the rate at which you build up pension each year. In the current civil service pension scheme it is 1/80th, 1/60th or 1/43.5th depending on the section members are in (the final salary schemes - Classic, Premium or Classic Plus and the career average scheme - Nuvos respectively). The accrual rate in the Government's proposals is 1/43.1th. The accrual rate is therefore more generous than the rate currently applying in Nuvos.
- Pension lump sum
Pension lump sum is the tax-free lump sum members are allowed to take when they start to draw their pension. In the Classic section of the civil service pension scheme there is an automatic tax-free lump sum of three times the pension. In the other sections of the scheme the tax-free lump sum is taken by "commuting" (ie giving up) pension in return for tax-free lump sum. As with Premium and Nuvos the new scheme allows for 25% of the pension to be "commuted" into pension lump sum at a rate of 12:1 (£12 tax-free lump sum for every £1 per annum pension given up).
- Other benefits
The pension scheme provides benefits on certain contingencies and for certain dependents (eg on ill-health, for surviving spouses / partners etc.). The new scheme provides benefits in line with those offered by Nuvos.
Q. Do the post April 2015 pension terms represent a good deal?
A. Clearly this is a key question when considering how to vote in the ballot: are the terms acceptable or could they be improved on through further action?
The reasons the Executive is recommending a 'yes' vote are given elsewhere: the Executive feels that the post April 2015 proposals are the best achievable through negotiation or through taking further industrial action. There is a risk that poorer benefits could be imposed if these proposals are rejected.
However it is worth considering the new pension terms carefully, which has been improved significantly from the Governments position at the start of negotiations . Obviously the most important issue is the level of benefit payable under the new terms and the calculator / examples will assist with this. It is also useful to consider the terms overall.
Prospect's main aim with respect to on-going benefits was to secure the best possible terms for members through the negotiations with the Government. In the context of the Hutton report it was felt extremely unlikely that no change at all to members' on-going benefits would be an achievable outcome through negotiations. At the start of the process it was felt that securing Nuvos benefits for all would be a successful outcome for members.
The final proposals for pension benefits to be accrued from April 2015 (for members not within 10 years of pension age on 1 April 2012) are closest to the Nuvos scheme but they are not the same as the Nuvos scheme.
The similarities between the Government's proposed benefit structure from April 2015 and Nuvos are:
- Career average scheme Revaluation in line with CPI (following the Governments' imposed change in 2011)
- Pension increases in line with CPI (following the Governments' imposed change in 2011)
- Same arrangements for taking pension lump sum Spouses benefits, death benefits, children's benefits etc.
There are three key differences in the benefit structure:
- Pension age of State Pension Age rather than 65
- Accrual rate of 2.32% rather than 2.3%
- No salary cap on pension to be accrued (75% in Nuvos)
The difference in pension age is more significant and results in the benefit structure being less valuable than Nuvos, this effect is partially offset by the higher accrual rate. Depending on members' age this could mean that the new structure provides benefits that are anywhere from about 4% to 12% less valuable than Nuvos.
It should be remembered that the Government's starting position involved benefits worth a further 40% less.
Members of the civil service and by analogy schemes should also remember that the member contribution to these schemes remains the lowest of all the public service schemes and the employer contribution will remain the highest of all the public service schemes.
Whether these terms represent a "good deal" essentially depends on whether members believe they can be improved on.
They certainly represent the best deal achievable by negotiations. Any improvement would only come on the back of significant industrial action. The Executive's recommendation is to accept these terms because they feel that the risks and costs of further action outweigh the potential benefits.
Q. If I draw this new pension before / after my State Pension Age it attracts an actuarial reduction / increase, what is the effect of this and how is it calculated?
A. Actuarial reductions or increases for drawing pension before or after State Pension Age are set independently based on demographic data and assumptions on longevity. The basic idea is that the overall value of the pension should be the same regardless of the age it is drawn at. If a member draws their post April 2015 pension before State Pension Age it is reduced because it will be in payment for longer and vice versa. The actuarial factors will vary over time as data and assumptions on longevity are updated but a good rule of thumb is for the reduction or increase to amount to about 4.5% - 5% for every year before / after State Pension Age that the pension is put into payment. The actuarial decrease or increase applies throughout retirement.
Members should be aware that the ability to achieve actuarial increases over NPA does not exist in any of the current schemes.
Q. I simply don't know what my State Pension Age is likely to be in the future, I don't trust the Government not to increase it from its current level, what guarantee can I have that the Government wont increase my State Pension Age just before I planned to retire?
A. It is not possible to give an absolute guarantee against such a measure. However past practice has shown that Governments generally prefer to give as much advance warning of increases to State Pension Age as possible. Changes to State Pension Age affect all workers and hence Governments will not have a political incentive to increase State Pension Age as a way of targeting the benefits of public sector workers alone. There are proposals for a more regular analysis of longevity resulting in more regular adjustments of State Pension Age in the future. This should allow for more certainty in planning for retirement once members are within a reasonable number of years of State Pension Age.
Q. What are the ill-health / spouse / death / children's benefits from this scheme?
A. The ancillary benefits from the scheme reflect those available from Nuvos. In broad terms benefits are payable on:
- Ill-health: two tiers of benefits based on whether members are too ill to do their job or any job
- Spouse / Partner: continuing pension of 3/8ths the member's pension to surviving spouse or partner on death in retirement
- Children: ongoing benefits for surviving children until adulthood
- Death-in-service: lump sum of 2 times salary payable to nominated beneficiary, pension benefits for surviving spouse / partner / children
These benefits are outlined in more detail in the scheme booklet for Nuvos.
Q. I have been a member of the pension scheme since I was 21 and my State Pension Age is 68, what is the maximum number of years I can accrue pension in the scheme?
A. Unlike Classic or Premium (where there is a limit of 45 years) there is no maximum number of years' service under the new proposals.
Q. If I can accrue over 47 years' service in the scheme is there a maximum level of pension that can be earned?
A. No, there is no maximum pension. Unlike Nuvos (where there is a limit on pension of 75% of final salary) there is no limit on the pension that can be accrued under the new proposals.
Q. Can I take my existing (pre April 2015) benefits at 60 and my new (post April 2015 benefits) at a later age?
A. Yes, see answer below.
Q. What is the effect of taking my old and new benefits separately?
A. For convenience sake we will call the pre April 2015 benefits (ie Classic, Premium or Nuvos benefits) the Part 1 pension and the post April 2015 benefits the Part 2 pension.
At members' existing pension age (ie 60 or 65) many people will have built up entitlement to Part 1 and Part 2 pension. By taking your the Part 1 pension you can immediately access their Part 1 pension lump sum, you do not have to wait until you retire or reach your new pension age to put this into payment. However, the Part 1 pension must be put into payment at the same time as the Part 1 pension lump sum.
If members decide to take partial retirement and continue to work in the civil service then they could be affected by a rule called abatement. This means that the sum of earnings and pension, after pension is put into payment, can not be more than earnings before the pension is put into payment. The consequence of this is that members may not receive the benefit of any Part 1 pension until they reduce their pre-pensions earnings in the civil service. If, for example, you reduced the number of hours you work through applying for partial retirement you could potentially still receive the same earnings as you were when working full time, as Part 1pension is added to your (reduced) salary . You would then be able to draw the Part 1 pension lump sum and part of their Part 1 pension while continuing to accrue the Part 2 pension.
The choice when to take the Part 2 pension is the members'. After drawing Part 1 pension, probably through taking partial retirement, or taking a post in a lower grade, you can then (fully) retire at any age. They can choose to put their Part 2 pension into payment immediately on retirement (if this is before the new pension age it will attract an actuarial reduction) or they can choose to leave it, increasing in value annually by CPI and then draw it on reaching their new pension age, when it will attract no actuarial reduction.
Q. I am making contributions towards added years / added pension, what will happen to this arrangement?
A. You will continue to make the same contributions and these will continue to purchase the same additional benefits in the section of the scheme you are currently in. The Government's proposals for benefits post April 2015 do not affect these additional contributions or benefits.
Q. I am making additional contributions up to the maximum level allowable of 15%, what will happen when my contribution rate goes up from April 2012?
A. Nothing, there is no longer a maximum level of contribution of 15%.
Q. I cannot afford the proposed contribution increase on top of my additional contributions, what can I do?
A. Added years' contracts must be paid in full or suspended completely. If you stop making your added years' contributions you will receive the number of additional years originally contracted for pro rata. Added pension contracts can be more flexible as members can stop a current contract and afterwards start one for a smaller amount. Members should consider all the issues and take advice where necessary before making significant changes to their pension planning.
Q. Why is there a cap on the cost of the scheme to the employer?
A. This was a recommendation by Lord Hutton. It is also a feature of the current pension arrangements.
Q. How does the proposed employer cap compare to the current cap?
A. There are a few differences between the operation of the cap on employer costs under the proposals and the operation of the current employer cap.
- There will be headroom of 2% of pensionable pay before the proposed employer cap comes into effect. The current cap is 20% of pensionable pay while the current cost of the scheme to the employer is 18.9%, meaning headroom is currently only 1.1%.
- Under the current proposals employers share any cost increases up to the level of the cap with the employer. There is no requirement under the new proposals.
- The proposals allow for a floor on the employer cost equivalent to the cap, costs will not fall by more than 2% of pensionable pay either. There is no equivalent measure in the current arrangements.
Q. How likely is it that the cap (or floor) will come into effect?
A. This is difficult to say. However there is reason to be hopeful that the cap will not impact on benefits for some time. The two main risks affecting the cost of pensions are the discount rate and longevity. Changes to the discount rate will not be allowed for in calculating whether the cap has been breached. Changes to longevity should broadly be allowed for by changes in State Pension Age.