today set out details of its offer to workers on public service
pensions. This new offer will mean that while most workers will
still have to work longer and pay more, the pension that most low
and middle earners working a full career will receive pension
benefits at least as good, if not better, than they get
The offer includes a more generous ‘accrual rate’ – the
rate at which annual benefits are earned – increasing from the
1/65ths offered in October to 1/60ths. This is an eight per cent
The Government also announced today its objective
that anyone within ten years of their pension age on 1 April 2012
will be protected, meaning they will see no change in when they
can retire nor any decrease in the pension they receive at their
normal pension age. This will benefit over a million
Others very close to being ten years from retirement
age may also see some additional protection, the details of which
will be subject to further discussions.
The reforms are due to come into force from 2015 onwards for the
rest of the workforce.
Today’s proposals are conditional on
agreement being reached in scheme by scheme talks.
previously announced, proposed pensions contribution increases
starting in April 2012 will still apply to those earning more than
£15,000 a year.
The offer means that, unlike many in the
private sector, public service workers will continue to have
access to a guaranteed benefit in retirement, not subject to
market fluctuations or fees.
For a public service worker to
buy a similar pension on the private market they would typically
need to contribute around one-third of their salary every year.
The Chief Secretary to the Treasury, Danny Alexander, said:
“From nurses to teachers, civil servants to road sweepers, public
service workers provide a valuable service and deserve good
pensions in retirement. But people are living longer, so public
service pension reform is inevitable.
“We’ve listened to
public service workers and come up with a deal that’s fair and
affordable. The lowest paid and people ten years off retirement
will be protected – and pensions will still be among the very best
The Minister for the Cabinet Office, Francis Maude
“From the beginning we have been absolutely committed to
engaging with the unions on making the necessary reforms to public
service pensions. We have listened to the concerns of public
service workers and responded. It is time now for the unions to
respond in a responsible manner and remember that industrial
action will cause unnecessary disruption to small businesses and
working people up and down the country who themselves do not have
access to such generous pensions schemes.
“Let's not forget that as well as the new
protections set out today, these proposals represent a settlement
for a generation – and a settlement that will still see public
service workers getting a guaranteed benefit in retirement –
something which has all but been eliminated
In July, the Government agreed a process
with the unions for taking forward Lord Hutton’s proposals for
long-term reform through scheme-specific talks. To provide the
parameters for talks with trades unions, the Government set out
initial cost ceilings at the beginning of October. These cost
ceilings set out the combined employee and taxpayer contributions.
The Government is not proposing any further increase in the
total employee scheme contribution rates in addition to the
proposed 3.2 percentage points increase in contributions already
Following these discussions, the Government has
increased these cost ceilings, making its offer more generous. It
is now for trades unions to come forward with detailed proposals
within these ceilings by the end of the year.
Based on the new
offer, some workers will actually receive larger pensions at
retirement, though they will have to work longer and in most cases
pay more to get them.
For example, at normal pension age, after a full career in
the new scheme:
• a nurse with a salary at retirement of
£34,200 would receive £22,800 of pension each year if these
reforms were introduced – under the current NHS Pension Scheme
1995 arrangements, they would only get £17,300;
• a teacher
with a salary at retirement of £37,800 would receive £25,200 each
year under our proposals, rather than the £19,100 they would
currently earn in the final salary Teachers’ Pension Scheme
• a civil servant with a salary at retirement of
£29,800 would receive a pension of £24,300 each year under our
proposals – under their current Nuvos Pension Scheme arrangements,
they would only receive £20,100 per year;
• a housing benefits
officer with a salary on retirement of £21,500 would receive
£17,500 each year under our proposals, rather than the £13,600
they would currently get in the Local Government Pension Scheme (1
• a hospital porter with a salary at retirement
of £14,600 would receive pension benefits of £11,900 each year, as
opposed to the £9,300 they would currently get in the NHS Pension
Scheme (2008); and
• a senior civil servant with a salary at
retirement of £100,000 would receive a pension of £37,000 each
year under our proposals, rather than the £44,400 they would
currently get in their Premium Pension Scheme arrangements.
Notes for Editors
1. Further details of the Government’s public service
pensions offer can be found in “Public Service Pensions: good
pensions that last”, published today, which can be found here: http://www.hm-treasury.gov.uk/tax_pensions_index.htm.
The cost ceilings for each pension scheme are set out below:
To view the table(s)/chart(s) in this release, please follow the
3. Employee contributions are based on
weighted average member contribution rates as at 2010. Net cost
ceilings will be revised based on projected membership data,
should this have a material impact on the comparison of a scheme
design with the Government’s preferred design.
Principal Civil Service Pension Scheme is for England, Wales,
Scotland and home civil servants in Northern Ireland.
studies on the effects on public service workers of a move to the
Government’s preferred scheme design are set out below:
To view the table(s)/chart(s) in this release, please follow the
6. The Government has also set out its objective that public
servants who, as of 1 April 2012, have ten years or less to their
pension age see no change in when they can retire nor any decrease
in the amount of pension they receive at their current Normal
Pension Age. Schemes and unions will discuss the fairest way of
achieving this objective.
7. This announcement is not directly
linked to the contribution increases set out in July which are
subject to ongoing consultation.
8. Estimates of the level of
contributions required from a private personal pension plan are
calculated by multiplying pension benefits by market annuity
9. Gross and net cost ceilings for the Local Government
Pension Scheme are purely illustrative and based on the proposal
to increase member contributions by 3.0 percentage points on
average by 2014-15. However, the Government launched a
consultation on 7 October 2011 into the level of member
contribution increase, entitled “Consultation on proposed
increases to employee contribution rates and change to scheme
accrual rates, effective from 1 April 2012 in England and Wales”.
If the outcome of the consultation is that member contribution
increases are less than 3.0 percentage points, the cost ceilings
will be amended appropriately.
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