top strap New Pension Scheme 2015 Government s Final Offer Members Ballot

Transcription

1 top strap New Pension Scheme 2015 Government s Final Offer Members Ballot 1

2 top strap Contents 1. Introduction the choice for members 3 2. An outline of the new scheme 5 3. How does a career-average scheme work? 7 4. Contributions 8 5. Normal Pension Age equals State Pension Age Accrued rights and transitional protection Flexibilities Added years/pension Total reward Equality impact assessments Fair Deal The cost cap and floor How does the new scheme compare with other public sector schemes? How does the new scheme compare with the current schemes? 22 2

3 1 Introduction - the choice for members This booklet provides detailed information on the offer from the Government for a new pension scheme from The FDA had committed from the outset that members would ultimately have the final say on the acceptability or otherwise of any revised pension scheme, and the information in this booklet should help you to make that decision. We recognise that for many members this is a difficult and complex issue, particularly given the nature of the offer and the potential for moving to a new pension scheme. The booklet is designed to provide information that will help you understand the impact on you of the proposed changes from Further information and a pensions calculator are available on the FDA website. The final offer is the culmination of almost two years of lobbying, submission of evidence, negotiation and industrial action by the FDA and many other public sector unions. Inevitably, in this time we have made progress on some key issues, but have not been able to move the Government on others. The proposed new scheme remains a highquality defined benefit scheme, but the changes will have a different impact on different groups of members. Conditional offer The Government s final offer is conditional on acceptance. 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 the proposed scheme design. The Government has not elaborated further on this point, but the clear implication is that if the offer is rejected, it may be withdrawn and an inferior scheme imposed in its place. Members will have to have considered this when making the final decision on the offer. The choice for members Members took action on 30 November as part of a large coalition of unions, in order to get the Government to engage seriously in negotiations on the pension schemes. That coalition no longer remains in place, and it is highly unlikely that it can be reformed for further industrial action. Members will need to consider, therefore, the impact of industrial action by the FDA on its own or as part of a much smaller group of unions. The Executive Committee (EC) has considered the offer and concluded that given all the circumstances, the offer is the best 3

4 Introduction the choice for members possible that can be achieved through negotiation. If the union wishes to have any chance of improving the offer, this would have to be through significant and sustained industrial action in the context of a much smaller group of unions taking action. The EC recognised that this will be one of the most difficult decisions members are asked to take. The Government has already imposed, without agreement, a contribution increase from 2012 in the middle of a pay freeze, and changed the method of uprating public sector pensions in payment from RPI to CPI without consultation, let alone negotiation. These changes are not part of this offer, and the FDA continues to oppose them. Members are rightly angry at these and other changes that have undermined the total reward package for civil servants, which the Government has also failed to address with us in a meaningful way. Membership participation It is vital that, however difficult that choice is, members vote to give a clear mandate to the union. The strength and credibility of the FDA s industrial action ballot last year was due not only to the overwhelming vote in favour of action, but also the high level of member participation. Members can be proud of the role they have played in influencing these negotiations. The union has come through this very difficult period stronger and with greater influence, and this must be maintained. However reluctant you are to make what we understand for many is a very difficult decision, the EC is urging you to take part in the ballot and give the union a clear direction going forward. Not to do so not only leaves that decision in the hands of others, but potentially undermines the union s position and strength. Members face a difficult choice: accept the offer, however reluctantly, or reject and commit to significant and sustained industrial action on the basis of the existing industrial action mandate. It is essential that before you make your decision you fully consider the implications of that choice. 4

5 2 An outline of the new scheme In summary, the new scheme as outlined in the Government s final offer has the following elements: it is a career-average scheme with an accrual rate of 2.32% (approximately 1/43.1) from 1 April This is slightly higher than both the current Nuvos scheme (2.3%) and the offer in the Heads of Agreement in December 2011 (2.28%). This booklet sets out an explanation of how a career-average scheme works (see section 3); revaluation of active member benefits is in line with the consumer prices index (CPI). Other public sector schemes have chosen to uprate by more than CPI, but have accepted a lower accrual rate as a consequence. The booklet provides a comparison of the main public sector schemes (see section 13); an average contribution rate of 5.6% with some tiering. This booklet outlines the contribution structure for the new scheme and how this will be reviewed (see section 4); Normal Pension Age (NPA) for service accrued in the new scheme will equal State Pension Age (SPA). This booklet explains what this means for those who will transfer to the new scheme (see section 5); there is transitional protection for members who are within 13.5 years of their current NPA at 1 April Those within ten years of their NPA will remain members of their current scheme and see no change in when they can retire and draw their pension. There will be additional tapered protection for members who are within a further 3.5 years outside this protected group. Staff with this transitional protection will have the choice to move to the new scheme immediately in April 2015 rather than at the end of the transitional protection. This booklet provides further detail on how this protection will operate (see section 6); partial retirement rules in the new scheme will follow existing rules. Members with service in both existing and new schemes will be able to apply for partial retirement under each scheme (see section 7); members will have the flexibility to take their pension accrued in their existing scheme (subject to existing scheme rules) without having to take 5

6 an outline of the new scheme any new scheme pension at the same time (see section 7); existing added years/pensions contracts will continue on the basis of the current levels of contribution (see section 8); members wishing to retire before their SPA will be able to pay additional contributions to fund early retirement of up to three years. This cannot reduce their NPA below age 65 (see section 8). abatement will not apply for service in the new scheme. In all existing pension schemes, the current rules provide that your salary can be reduced (abated) if you return to work in the civil service following retirement; The Government has committed to full and rigorous equality impact assessments for each of the main public sector pension schemes. Following this, there will be a central analysis to compare and assess the impact across all of the schemes. Unions will be fully involved in this process (see section 10). The Government s final offer incorporates a commitment to introduce Fair Deal arrangements to the civil service. Fair Deal arrangements currently apply in the rest of the public sector, but not the civil service (see section 11). The final offer also outlines proposals on the 25-year guarantee and the cost cap and floor arrangements (see section 12). a death in service lump sum of two times salary or five times accrued pension, whichever is higher in line with the current arrangements in Nuvos (see section 14); ill-health benefits in line with the current arrangements in Nuvos (see section 14). 6

7 3 How does a career-average scheme work? In a career-average scheme, each year the scheme member earns an amount of pension based on the scheme s accrual rate and their salary in that year. This is then re-valued (or uprated) each year. At retirement, each year s sum/amount of accrued pension is added together to give the total pension. Example Here is an example of how the new scheme could work (an accrual rate of 2.32%; salary on joining the new scheme of 50,000; and CPI as the uprating index). This example will assume that CPI increases by 2% each year. Year 1 Year 1 Salary = 50,000 Accrual rate = 2.32% Pension accrued ( 50,000 x 2.32%) = 1,160 1,160 Year 1 Year 2 Salary = 52,000 Accrual rate = 2.32% Pension accrued ( 52,000 x 2.32%) = 1,206 Plus year 1 accrual of 1,160 + CPI (2%) = 1,183 Total pension accrued (years 1 and 2) = 2,389 Year 3 Salary = 53,000 Accrual rate = 2.32% Pension accrued ( 53,000 x 2.32%) = 1,230 Plus years 1 and 2 accrual of 2,389 + CPI (2%) = 2,437 Total pension accrued (years 1 3) = 3,667 Pension continues to build up in this way until it is paid normally at Normal Pension Age. 2,389 Years 1 & 2 3,667 Years 1, 2 & 3 final pension? 7

8 4 Contributions The Government s final offer sets out that the average rate of pension contributions for the new civil service scheme will be 5.6%. With effect from April 2015, all civil servants will pay pension contributions in accordance with the structure set out below. This structure applies equally to members of the new scheme as well as to those who will remain in their current scheme under transitional protection. Full-time salary Contribution Cost after tax relief Less than 21, % 3.68% 21,001-45, % 4.36% 45, , % 4.41% Over 150,000 9% 4.95% Full-time equivalent contributions Members who work on a part-time basis will pay contributions based on their full-time equivalent (FTE) salary. The justification given by the Cabinet Office for using FTE salary for pension contributions was set out in the Government s response to the consultation it conducted in 2011 as follows: We have concluded that the use of FTE salary will ensure that the same level of contributions are set relative to the amount staff earn per hour which is the fairest way of treating full and parttime staff in relation to this issue. This means that the percentage contribution rate is set according to the full-time equivalent pay of part-time staff. However a part-time worker would then pay contributions equal to that percentage contribution rate of their actual part-time pay. The part-time worker s length of service would also be scaled down to its full-time equivalent length. This is consistent with existing practice in other schemes. FTE is used in all of the other public sector pension schemes that already have tiered contribution rates. However, the decision to use full-time equivalent contribution rates will be a key issue for the equality impact assessment (EIA) that the civil service has to undertake. Section 10 of this booklet outlines the approach and processes the Government and TUC representatives have determined must be followed in conducting an EIA. This includes full union involvement. 8

9 contributions Review The FDA argued strongly in negotiations that contribution rates in the new scheme should be broadly flat, subject to the tax regime that is applicable at the time. Whilst Lord Hutton had argued in his public sector pensions review that in a final-salary pension scheme, those who were higher paid received a disproportionate benefit relative to contribution, this is not the case for a career-average scheme. The contribution structure is designed to provide some protection for the lowest paid and for those earning more than 21,000. The rates are broadly equivalent when account is taken of the different rates of tax relief on pension contributions that operate at different salary levels. The civil service scheme has the flattest contribution structure of any of the public sector schemes and details of how these compare can be found in section 13. The structure set out in the final offer reflects the tax rates and bands that operate in 2012 and a judgment on what constitutes low pay. All of this may look very different in 2015 and therefore the contribution structure set out on page 8 will be subject to review prior to April This review will take account of the following priorities. to include protections for the low paid; to take account of the tax regime applicable at that time; to minimise the risk of opt-outs from the scheme across the whole membership; to ensure that the scheme remains sustainable, a valuable part of remuneration, and affordable to all members; and to ensure that the average contribution is 5.6%. Relevant data and information will be collated to inform this review. Contribution structure up to 2015 The table on page 8 sets out the contribution structure that will apply from The contribution structure for the years leading up to 2015 have not been subject to negotiations, are not part of the Government s final offer and are opposed by the FDA. The Government has imposed an increase in contributions of 1.3% on average for 2012 and has stated its intention to consult on further increases in 2013 and The FDA s Fair Pay, Fair Pensions campaign will continue to highlight the impact the pensions levy will have on members, the further erosion of the total reward package and the continued disparity of civil service pay levels with comparable jobs in the private sector. 9

10 5 Normal Pension Age (NPA) equals State Pension Age (SPA) A key and particularly unwelcome feature of the new scheme is that the Normal Pension Age (NPA) will be equal to the State Pension Age (SPA). This means that for all pension accrued from April 2015 in the new scheme, the earliest age that this pension can be drawn without reduction will be whatever is the individual s SPA. This will be determined by a scheme member s date of birth and means that in the new scheme: NPA is not a fixed age for all scheme members; and NPA may be changed during the course of a member s career, if there is an increase in the SPA or if the current plans for increasing the pension age are brought forward. Current plans The Government s current plans for the SPA are initially to harmonise for men and women at age 65 and then to increase the SPA as follows: By 2018 harmonise at 65 Between 2018 and 2020 Increase to 66 Between 2026 and 2028 Increase to 67* Between 2044 and 2046 Increase to 68 Members can identify their own SPA by visiting the following website: Review of SPA The final offer states that the Government is considering how best to continue dialogue on the process that will be used to determine future changes to the SPA. This will be based on demographic evidence and allow for the views of interested parties to be considered. In the 2012 Budget, the Chancellor of the Exchequer announced an automatic review of SPA in line with longevity changes. It is expected that the Government will publish proposals in the near future on a process for determining changes to SPA. *this is a change in the timing of the move to 67 and is not yet law, so will require the approval of Parliament. 10

11 6 Accrued rights and transitional protection Lord Hutton s Independent Public Service Pensions Commission stated: The Government must honour in full the pension promises that have been accrued by scheme members: their accrued rights. The Commission recommended that honouring accrued rights would mean maintaining the final salary link for past service for current members. These recommendations have been accepted by the Government as the basis of finding a negotiated settlement and underpin the final offer. In effect, the commitment on accrued rights means that: all (or part) of the pension built up in the member s current scheme up to 2015 (and beyond 2015 for those covered by the offer on transitional protection) can be drawn at the Normal Pension Age (NPA) of the member s current scheme (60 or 65) on retirement or partial retirement; and the accrued rights pension will continue to be calculated on the basis of a member s final salary (as defined in their current scheme) and not (as would typically be the case in the private sector) their salary at the point that they join the new scheme e.g. April The significance of the protection of accrued rights will become more apparent in the next few sections of this booklet. Transitional protection The Government s final offer includes some transitional protection for those within 13.5 years of the normal pension age (NPA) of their current scheme (60 or 65) as at 1 April This protection is unlimited for those within ten years of their current NPA and limited for those who are a further 3.5 years outside this ten-year period. Within ten years of current pension age (60 or 65) Those who, as at 1 April 2012 are 50 or over and a member of Classic, Classic Plus or Premium, or 55 and over and a member of Nuvos, will remain a member of their current scheme until such time as they decide to retire, which may be on or after their current NPA. Members in this group will retain the ability to retire and draw their pension without reduction from their current pension age (60 or 65). There is no change to pension accrual and benefits for this group. 11

12 accrued rights and transitional protection More than ten years but less than 13.5 years from current pension age (60 or 65) Members in this group will have a choice - either to remain in their current scheme for a limited period beyond 2015 or to transfer to the new scheme. Members who choose to remain in their current scheme will be able to continue to accrue in that scheme for two months for every month that they are older than 46 years and 6 months (51 years and 6 months for Nuvos) up to a maximum of 82 months. All or part of the pension built up in an existing scheme can be drawn at the current pension age (60 or 65) on full or partial retirement. For members of Classic, Classic Plus and Premium, the pension for all service up to the end of the period of protection will be calculated on the basis of final salary at retirement (not at the end of the period of protection) as defined in the current rules of these schemes. Further details on the tapered protection are set out in the Government s final offer which can be found on the FDA website. Case study Bernadette is a member of the Premium Scheme. On 1 April 2012, Bernadette is 48 years and 0 months and will therefore be able to remain in her current scheme for a period of 36 months from 1 April 2015 (when she will be 51 and 0 Months). At the end of this period of protection i.e. at the age of 54 and 0 months, Bernadette will transfer to the new scheme. More than 13.5 years from current pension age There is no transitional protection for those who, as at 1 April 2012 are more than 13.5 years from their current pension age. All or part of the pension built up in an existing scheme can, however, be drawn at the current pension age (60 or 65) on full or partial retirement. For members of Classic, Classic Plus and Premium the pension for service up to April 2015 will be calculated on the basis of final salary (not the salary at 2015), as defined in the current rules of these schemes. 12

13 7 Flexibilities There are some flexibilities built into the final offer that will be important for many members in determining how and when they take all or part of their pension. Members who, as at 1 April 2012, are more than ten years from their current Normal Pension Age (NPA) (60 or 65) will build up pension in two parts as follows: Part one pension is based on the years of pension built up in a current scheme. This pension can be paid, without reduction, from the current NPA (60 or 65) following full or partial retirement. Those in final-salary schemes (Classic, Classic Plus and Premium) will have their part one pension based on their final pensionable salary (as defined in their current scheme rules), rather than at the point of scheme closure, as would normally be the case when a pension scheme is frozen. Part two pension is any pension built up (accrued) in the new scheme from April 2015.This pension can only be paid without reduction, from a member s State Pension Age (SPA), which will be at a later date than their part one pension. How does this affect me? Those 50 (55 in Nuvos) or older as at 1 April 2012 will have a part one pension only because they will continue to build up pension in their current scheme after April They retain the right to draw any pension built up at their current NPA (60 or 65) following full or partial retirement. Those who have the limited protection (more than ten but less than 13.5 years from their current pension age i.e. under 50/55 but over 46.5/51.5) will, if they opt to remain in their current scheme after April 2015, continue to build up a part one pension until the end of the period of protection. At this point they will transfer to the new scheme and start to build up a part two pension. The part one pension can be paid without reduction at their current NPA (60 or 65) following full or partial retirement. The part two pension can only be paid without reduction at the member s SPA. Those who fall outside of transitional protection, i.e. those who are 46.5 (51.5 in Nuvos) or younger as at 1 April 2012 will continue to build up a part one pension (in their current scheme) until April In April 2015 they will transfer to 13

14 flexibilities the new scheme and start to build up a part two pension. The part one pension can be paid without reduction at the current NPA (60 or 65) on full or partial retirement. The part two pension can only be paid without reduction at the member s SPA. What is full retirement? The member must leave the employment of the civil service. The member s part one pension will be paid without reduction if retirement is at or after the member s current NPA (60 or 65). Members will have the option to draw their part two pension at the same time, but it will be reduced if retirement occurs before their SPA. Alternatively they can opt to defer their part two pension until their SPA, when it will be paid without reduction. In line with current scheme rules for members in Classic, Classic Plus and Premium part one pensions will not be enhanced if taken late. However, for members in Nuvos, part one pensions will be enhanced if taken late. Case study Brian is 49 years 0 months as at 1 April 2012 and has built up 24 years of service in the Classic scheme. Brian chooses to remain in Classic and his period of transitional protection is 60 months from 1 April Brian transfers to the new scheme on 1 April 2020 when he is 57 years 0 months and has built up 32 years in Classic. At the age of 60 (the NPA of Classic) Brian decides to retire and draw his Classic pension. His final pensionable salary on retirement is 53,000. Brian s Classic pension is therefore: 53,000 x 32 = 21, Brian has built up a pension of 3,667 in the new scheme (see example in section 3) and can either draw it early with an actuarial reduction of approximately 25% or defer taking it until his State Pension Age of

15 flexibilities What is partial retirement? The Government s final offer incorporates a commitment that the civil service will continue to offer members the opportunity to take partial retirement. This commitment extends to members with service in both the current and new schemes. The rules for partial retirement require a member to reach an agreement with their employer that their job can be re-shaped. This means an agreement to reduce either their hours of work or their salary, by at least 20%.This requirement could be met by, for example, reducing full-time working hours to four days per week or less, or by accepting a job at a lower grade. More than 5,000 civil servants have, to date, been able to re-shape their job by agreement with their employer and have taken advantage of partial retirement allowing them to draw all or part of their pension. Those taking partial retirement continue to build up pension in their existing scheme, until such time as full retirement when they cease to be employed by the civil service. Case study Julie is 42 years of age as at 1 April On 1 April 2015 Julie transfers to the new scheme having built up 15 years in the Premium scheme. In 2030, at the age of 60 (the NPA for Premium), Julie reaches agreement with her employer to reduce her working hours to three days per week. Her salary reduces accordingly. Julie can now take partial retirement and draw all or part of the pension she has built up in the Premium scheme without reduction. Julie s salary for the calculation of her Premium pension is 60,000. Julie s pension will be 60,000 x 15 = 15, Julie will continue to build up pension in the new scheme, which can be drawn without reduction at her State Pension Age of 67. Buying more pension Members will continue to be able to buy added pension, on the same basis as now, in the new scheme. In addition, members will in future be able to pay additional contributions to fund earlier retirement, without actuarial reduction, of up to three years before their SPA (but this will not provide a pension age of less than 65). 15

16 8 Added years/pension Existing added years arrangements will continue on the same basis as now. This means that all members, whether they have transitional protection or not, will be able to continue to make additional contributions at the same percentage of salary as now up to the NPA of their current scheme (60) unless they decide to terminate the arrangements. The added years that members are buying will, as now, continue to be included in the calculation of a member s pension at the current NPA (60), or a later date if the member chooses to continue working beyond their NPA. Added years will therefore continue to be calculated on the basis of final salary (as defined in their current scheme). Case study Mike is 44, and by April 2015 will have built up 22 years service in the Classic scheme (accrual rate 1/80th). Mike has existing added years arrangements and continues to pay additional contributions up to his NPA of 60 to buy three added years. If Mike decides to retire or take partial retirement at his current pension age it will be calculated as follows: Salary at NPA = 80,000 Service up to April 2015 = 22 years Added years purchased at NPA = 3 years Pension that can be drawn at current NPA (60) = (22 + 3) x 80,000 = 25, Added pension Existing added pension arrangements will continue on the same basis as now and will continue to be payable at a member s current NPA (60 or 65). 16

17 9 Total reward The FDA has consistently stated that changes to pension arrangements should not be considered in isolation from other aspects of the total reward package and, in particular, pay. This was a significant feature of our evidence to Lord Hutton s Independent Public Service Pensions Commission, which identified that pay levels for civil servants in the grades represented by the FDA are substantially lower than for comparable jobs in both the private and wider public sectors. Throughout the negotiations, we have continued to press the Government on the impact that changes to pension arrangements will have on the total reward package for members, leading to a further worsening of the comparability with equivalent roles in the rest of the public sector and private sector. We regret that the Government s final offer does not contain a commitment that could be considered to be meaningful progress on this issue. The FDA has been given an undertaking of further, separate dialogue on this issue and we will take this and any other opportunity open to the union, to continue to highlight and campaign about the disparities between the pay levels of our members and those in comparable jobs in other sectors. This is likely to be a significant factor in departmental pay negotiations in the coming years. 17

18 10 Equality impact assessments The FDA remains concerned at the failure, to date, of the Government to undertake a full and rigorous equality impact assessment (EIA) of its final offer for a new pension scheme to be introduced in April As a result of concerns expressed by unions across all the main public sector schemes, the Government agreed to establish a joint working group with the TUC to consider the overall approach and processes for undertaking appropriate EIAs. That working group has determined that the following approach should be adopted. EIAs will be conducted by the relevant sponsoring departments - in the case of the civil service, this is the Cabinet Office. In addition, the Government will conduct a central analysis in order to compare and assess the impact across all of the schemes. The timescale for the assessment is pressing, and the process must be completed in good time to allow the analysis to influence decision-making and the conclusion of the policy development process, prior to the introduction of legislation. Departments will therefore aim to complete the EIAs by the end of May The Government will then complete the central analysis over the following four weeks. The central working group will meet in June to discuss the analysis and consider any further action. The relevant unions should be engaged and consulted from the outset, including on the scope and methodology for the assessment. Unions will have the opportunity to submit evidence and views on equality impact, and the Government will seek feedback on the analysis and reasoning during the process and share the results of the EIAs with unions. The EIAs should be conducted in a way that demonstrates compliance with the public sector equality duty and good practice guidance from the Equality and Human Rights Commission. The EIAs must assess the impact of the reforms on all of the relevant equality strands. Following the completion of the EIAs, the Government will consider what further mitigating actions might be necessary in pursuance of the public sector equality duty. The next steps, including any mitigating actions, will be discussed with unions prior to the introduction of legislation. 18

19 11 Fair Deal The Government s final offer incorporates a commitment to introduce Fair Deal arrangements to the civil service. Fair Deal arrangements currently apply in the rest of the public sector, but not the civil service. What is Fair Deal? Fair Deal will allow members who are compulsorily transferred out of the civil service, as a result of a privatisation or mutualisation for example, to retain their membership of the Civil Service Pension Scheme, even though they now work outside of the service. This would also apply for any subsequent transfers to future employers who may take over the contract. What happens currently? Civil servants are currently offered a broadly comparable pension scheme following transfer to another employer. The new employer can subsequently change the terms of the broadly comparable scheme or close it to prevent further accrual. This would be of particular concern in relation to any transfer to a private sector employer, given that around two-thirds of private sector employers no longer offer pension arrangements for new staff. 19

20 12 The cost cap and floor One of the features of the new pension scheme will be an employer contribution cap. The employer cost cap will be set following a full actuarial valuation, which we expect to be undertaken in The purpose of the cost cap is to protect the Government from highly exceptional and unanticipated events that very significantly increase scheme costs. The cap will be set at two percentage points above the employer contribution rates calculated ahead of the introduction of the new scheme in Only changes to scheme costs due to member costs, such as a dramatic change in longevity which had not been addressed by linking Normal Pension Age (NPA) to State Pension Age (SPA), would be controlled by the cap. The way in which this mechanism works is similar to existing cap and share arrangements introduced by the previous Government. We argued strongly that the automatic link of NPA with SPA could result in costs declining if this effectively over insures the risk of longevity. We therefore negotiated a cost floor to apply in a similar way to the cost cap. If there are reductions in member costs, such that the cost falls below a floor, the savings would go back into the scheme for the benefit of members, such as by improving members benefits or reducing member contribution rates. 25-year guarantee The Government has stated that it considers the proposed scheme to be fair and sustainable, and one that can endure for 25 years. This would mean no changes to scheme design, benefits or contribution rates outside of the processes agreed for the cost cap and floor. There will understandably be some scepticism about the value of a guarantee. There are clearly limitations on the degree to which this Government can commit future governments. It has, however, committed to include provisions in the forthcoming Public Service Pensions Bill to set a high bar should any future Government want to change the design of the scheme. The Chief Secretary will also give a commitment to Parliament of no more reform for 25 years. 20

21 13 How does the new scheme compare with other public sector schemes? The four main public sector schemes are: health; teachers; civil service; and local government. The local government scheme is established on a different basis to the other three (it is a funded scheme similar to a private sector scheme whereas the other three are unfunded). The Government is seeking similar changes to the local government scheme, but negotiations are continuing on the basis of a different timetable to the other main schemes. The health, teachers, and civil service schemes will have a number of common elements as follows: Normal Pension Age will be State Pension Age; pension in payment uprated in line with CPI; pensions in deferment uprated in line with CPI; commutation rate of 12 to 1; protection for those over 50/55; tapered protection for those over 46.5/51.5; Fair Deal guarantee; employer cost cap arrangements; tiered employee contributions using full-time equivalent earnings; and a 25-year guarantee. The main areas of difference between the schemes are as follows: Civil service NHS Teachers Rate of accrual 1/43.1th 1/54th 1/57th Re-valuation of accruing pension CPI CPI + 1.5% CPI + 1.6% Total contributions 22.5% 21.9% 21.7% Employer contributions 16.9% 12.1% 12.1% Employee contributions (average) 5.6% 9.8% 9.6% 21

22 14 How does the new scheme compare with the current schemes? New scheme April 2015 Nuvos Premium Classic Type of definedbenefit scheme Career average Career average Final salary Final salary Accrual rate 2.32% (approx 1/43.1th) 2.30% (approx 1/43.5th) 1/60th (approx 1.67%) (1/80th) (1.25%) Revaluation rate CPI CPI (was RPI until 2011) Own earnings Own earnings Pension age State Pension Age Automatic pension lump sum No No No Yes (3 x pension) Lump sum trade off Trade 1 of pension for 12 lump sum up to a maximum of 30/7 of pension Trade 1 of pension for 12 lump sum up to a maximum of 30/7 of pension Trade 1 of pension for 12 lump sum up to a maximum of 30/7 of pension Trade 1 of pension for 12 lump sum up to a maximum of 33/14 of pension Early retirement reduction Broadly less than 5% per year Approx 5% per year Approx 5% per year Approx 5% per year 22

23 top strap Late retirement enhancement Yes Yes No No Ill health provision Lower tier accrued pension paid early without reduction or enhancement. Upper tier immediate payment of benefits consisting of lower tier benefits plus upper tier top-up. Lower tier accrued pension paid early without reduction or enhancement. Upper tier immediate payment of benefits consisting of lower tier benefits plus upper tier top-up. Immediate payment of benefits as on normal retirement, but based on service enhanced to NPA for those who cannot work again. Immediate payment of accrued benefits (with enhancement for those under ten years qualifying service) for those who cannot continue at their present level. Immediate payment of benefits as on normal retirement but based on enhanced service if 5 years qualifying service completed. Caps or restriction on pension accrual None Maximum pension of 75% of highest scheme earnings Earnings cap currently 137,400 Earnings cap currently 137,400 Maximum period of accrual None None 45 years 45 years Death in service benefit 2 x salary 2 x salary 3 x salary 2 x salary The Classic Plus provision is as per Premium. 23

24 top strap Published by FDA, 8 Leake Street, London SE1 7NN 24