Principal Civil Service Pension Scheme

Transcription

1 Principal Civil Service Pension Scheme Consultation on proposed increases to employee contribution rates effective from April 213: Background and further information November 212

2 The Civil Service Pension Scheme: Legislative background 1. The PCSPS is a statutory pension scheme, providing pension benefits for Civil Servants and for those in offices or employments listed in Schedule 1 to the Superannuation Act 1972 (SA72). Section1(3) of SA72 requires Cabinet Office to consult with persons affected (i.e. members) or their representatives before changes are made to the scheme. In practice, Cabinet Office usually consults the Civil Service unions, as is the case here. Following this policy consultation, Cabinet Office will consult the unions on the technical wording of the amendments to the scheme rules. 2. Section 2(3) of SA72 prevents any changes which are detrimental to accrued pension rights unless the persons consulted in accordance with section 1(3) have agreed to such changes. The current proposals are to increase employee contributions in respect of future service only and Cabinet Office does not consider that this affects accrued rights. The Civil Service pension arrangements 3. The PCSPS is in three main sections 1 - the 1972 section known as classic, the 22 section known as premium and the 27 section known as nuvos. classic and premium are final salary arrangements with a general pension age of 6, while nuvos provides benefits calculated on a career average basis and has a pension age of 65. Membership of premium is restricted to Civil Servants who entered service between 1 October 22 and 3 July 27, those who returned to service from 3 July 27 with a break of less than 5 years and those who chose to transfer from classic in the pensions options exercise run in 22 (some of the transferees retained classic benefits for their service before October 22 their arrangements are known as classic plus). Membership of nuvos is restricted to those who entered service on or after 3 July A fourth section of the PCSPS rules sets out the process to be followed when carrying out valuations of the scheme and also sets out how the Governance Group will operate. 5. In common with most other public service pension schemes, the PCSPS operates on an unfunded pay as you go basis. This means that pensions are paid from current revenues (with any shortfall met from the Exchequer). The pension promise is therefore provided by the Government of the day rather than by reliance on a fund of assets. 6. Despite its unfunded status, the PCSPS is subject to periodic valuations and contributions are paid by employers and employees at a combined level, determined by the scheme actuary, sufficient to meet the liabilities being built up by the active membership (as adjusted to reflect any surplus or shortfall in the scheme). The last valuation was carried out as at 31 March 27 2 and recommended that the average employer contribution was set at 18.9% of pensionable payroll. 7. The members contribution rates are set in the scheme rules. In April 212 tiering arrangements were introduced into the PCSPS. From that point premium and nuvos members have contributions at a rate of 3.5% to 5.9% of pensionable earnings. classic 1 Information on the PCSPS can be found at 2 The 27 valuation report can be found at 2

3 members are now making a 1.5% contribution of their pensionable earnings towards survivors benefits (and they may receive a partial refund of those contributions if they are neither married nor in a civil partnership when they retire) together with an additional contribution of between % and 2.4%. Employers are expected to take the level of the employee contributions into account when setting pay. Not all members pay contributions at the standard rates; there are some exceptions: Members who have reached maximum service do not pay contributions Pre-Fresh Start prison officers in classic (those who joined before September 1987) have a pension age of 55 and receive double accrual of benefits after they have built up 2 years of service this allows them to build up 4 years of pensionable service over a period of 3 years of actual service. During the period of double accrual prison officers pay contributions at twice the normal rate (3% rather than 1.5% plus a further % to 2.4%) Some senior staff have special accelerated accrual terms and pay an individual contribution rate which is higher than normal 8. As at 31 March 211, there were approximately 564, active members in the Civil Service pension scheme, and around 64, pensioners (including dependants). Of the active membership, 57% were members of classic, 26% were members of premium, 2% were members of classic plus and 15% were members of nuvos. The average pension in payment to retired members during was just over 7, The pay distribution in the Civil Service is shown in the pie chart below (pay rates are full-time equivalent): Civil Service Statistics Cabinet Office: Civil Superannuation Resource Accounts HC113. Also available at 3

4 Opt-out Analysis 1. The Proposed Final Agreement for the Civil Service pension scheme was published on 9 March 212. This set out that contribution structures in would be the subject of discussion by Cabinet Office and unions in the light of experience of opt-outs, other member behaviour and changing circumstances. 11. Cabinet Office has collected monthly data on scheme opt-outs, starting from January 212. This data shows that there have been a total of 1,172 opt-outs from 1 April 212 to 31 July 212. The monthly pattern of opt-outs from January to July is show in Chart 1 below: Chart 1 Total scheme opt-outs, January 212 July Raw data 12. However, the raw data contains many instances where individuals are recorded as having opted-out of the scheme on the same day that they join it. The scheme these individuals are recorded against is nuvos. Cabinet Office has established that in April, HM Revenue and Customs had a large intake of fixed term appointments. Past experience suggests that staff on fixed term appointments often opt with effect from the day which they join. This is the because under the rules of the scheme is that members must have at least 2 years qualifying service years before they have a right to a pension if leaving before pension age. For the purpose of this analysis, Cabinet Office believes that the data is being skewed by these staff and that analysis should be carried out on the opt-out population excluding these staff, in order to judge whether or not existing members are changing behaviour as a result of the contribution increases. 13. Chart 2 below shows the number of scheme opt-outs not including members that we believe to be on fixed term appointments, where the date of opt-out is equal to the date of joining. From this point forward in this note, this is the group that is used for further analysis, rather than the wider group. 4

5 Chart 2 Total scheme opt-outs, January 212 July 212, excluding cases where date of opt-out is equal to date of joining The opt-out data that was obtained allows us to analyse the population in more detail. Chart 3 shows the gender of the opt-outs which shows prior to April, the number of females opting out were greater than men and post April, there were a higher number of males who were opting out. However, Chart 4 below shows the gender of opt-outs as a proportion of the population of each gender (statistics provided from Civil Service Statistics 211). This shows that as a proportion of the overall relevant population the opt-out rate for both men and women has been very low, at between.5% and.2% since April. Chart 3 opt-outs by gender, January 212 July Female Male Chart 4 opt-outs by gender, as a proportion of total male/female population.2%.15%.1%.5% Female Male.%, Civil Service statistics 211 5

6 15. Chart 5 and 6 show a breakdown of the number of people who have opted out by full time / part time status. This shows that a higher number of full time workers have opted to leave the scheme in absolute terms, whilst in proportionate terms there are more part-time than full-time optants-out. There is no discernable change in these trends in the months leading up to the contribution increase, and the immediate months after it. Chart 5 opt-outs by full time / part time status PT FT 1 Chart 6 opt-outs by full time / part time status, as a proportion of total full time / part time population..25%.2%.15%.1% Part time Full time.5%.%, Civil Service statistics Charts 7 and 8 below show the number of opt-outs within the scheme by salary band, both in absolute terms and as a proportion of the overall population in each salary band. This shows that in absolute terms in almost every month the salary band showing the most opt-outs is those earning between 21,1 and 3, on an FTE basis, whilst in proportionate terms the largest number of opt-out is amongst those earning less than 15,. Contributions did not increase in April 212 for staff earning less than 15, and so it cannot be the case that the increase in contributions was the cause of these opt-outs. Since April 212, 8 members who are within the full time equivalent banding of 6,+, opted out of the scheme. 6

7 Chart 7 Opt-outs by salary band , 15,1-21, 21,1-3, 3,1-5, 5,1-6, 6, Chart 8 Opt-outs by salary band, as a proportion of the population.25%.2%.15%.1% -15, 15,1-21, 21,1-3, 3,1-5, 5,1-6, 6,1+.5%.%, Civil Service statistics 211 7