CIVIL SERVICE PENSIONS

II – The New Scheme

	Final Proposal	
Type of Defined Benefit Scheme	Career Average	
Accrual Rate	2.32% (1/43.1th)	
Revaluation Rate	CPI	
Employee Contribution	0 - £21,000  4.6%
£21,001 - £45,000  5.45%
£45,001 - £150,000  7.35%
Over £150,000  9%	
Pension Age	State Pension Age	
Lump Sum Trade Off	Trade £1 of pension for £12 lump sum	
Early Retirement Reduction	Cost neutral to the scheme, broadly less than 5% per year	
Flexibility on Taking Pension	Members with service in more than one scheme can draw pension from pre and post 2015 service separately at different ages	
Re-employment	No reduction for new scheme service	
Maximum Length of Membership	No limit	

Examples

Steve earns £18,000 a year and on retirement has 15 years’ service in the 2015 scheme.  Taking inflation (CPI) into account, he has an average revalued salary over that career of £17,500.  His pension is £6,090 a year.  If he retires before his state pension age, this will be reduced.  His contribution in the new scheme is 4.6%.  

Darshan has 15 years’ service in Classic when he joins the new scheme in 2015.  When he reaches 60 he is earning £20,000 and decides to retire.  He takes his Classic pension worth £3,750 a year and lump sum of £11,250 then.  By the time he’s 60, his state pension age is 66 and instead of taking a six year reduction (around 30%) on his new scheme service, he decides to wait until he’s 66 before taking his 2015 scheme pension.

Carolyn works part time (half hours) earning £11,000 a year.  Her contributions are based on her full time equivalent earnings of £22,000 so her contribution rate is 5.45% but paid on the basis of her actual salary.  Her monthly contributions to the new scheme are therefore £50 (£40 after the effect of tax relief is taken into account).  For each year of service she builds up pension worth around £255 a year. 

Outsourcing

As part of this final proposal, government has committed to extending access to the Civil Service Pension Scheme to members that are transferred out of the civil service (whether through TUPE to the private sector or some similar arrangement to a mutual or social enterprise for example).  Discussions on this are expected in the coming months.

Long Term

The benefits listed for the new scheme will be governed by a cost capping mechanism designed to stop the cost of the scheme to the employer rising.  The exact details of how government intend to achieve this are still not clear.  GMB has pressed government for more detail on this crucial issue but as yet they have not been prepared to engage in discussions on this feature of the new scheme.

The link to the state pension age means that if state pension age rises for an individual while they are a member of the new scheme, their scheme pension age rises too and they will not be able to access their pension without reduction until their state pension age, even if this is higher than it was when they join the scheme.