Transcript Civil Service Pensions Pension Reform Overview of pension reform  Rationale for change  What changes; what’s the same?  Impact.

Civil Service Pensions
Pension Reform
Overview of pension reform
 Rationale for change
 What changes; what’s
the same?
 Impact
Rationale for reform
 Committed to be a good employer
Provide defined benefit, index-linked and
sustainable pension
 Our commitment is costing more
People live longer - pensions paid longer
 Working patterns are changing
People want more flexibility
Need for reform: increasing costs
People living longer after age 60
+ 27
+ 20
1972
2004
Men
Source Hewitt Bacon & Woodrow
+ 23
+ 30
1972
2004
Women
Need for reform: modern workforce
 Multiple jobs
 Flexible work
patterns
 Average retiring
age now 62 years
 Expected longer
working life
What changes: what’s the same?
Existing employees
New employees
Core benefits unchanged plus
possible improvements
Benefits based on pension at
65 and career earnings
All employees
Shared affordability and scheme governance
Current scheme for existing staff
Existing employees retain:
 Pension age – 60 for most
 Final salary pension index-linked to Retail Price Index
as now
PLUS
● Possible future improved benefits
Sustainability and shared responsibility
Pension needs to be sustainable
Employer and employee share increased costs
Employer costs limited to average 20% of pay
Governance measures linked to shared responsibility
Agree new mechanism with unions
for dealing with future cost increases
New scheme for new employees (1)
New employees




Pension age 65
High quality, defined benefit, index-linked pension
Based on pay earned each year
Contribution 3.5% pay
New scheme for new employees (2)
Benefits





Pension builds up at 2.3% of pay each year
Death in service benefits
Dependants/partner/spouse pension
Ill-health protection
Elements of flexibility
 top up benefits
 lump sum
How the new scheme works
Pension earned to date
Increase
New pension
Year 1
Year 2
Year 3
Pension changes - public sector
Example: Teachers
•
Teachers
Increase contribution from
6% to 6.4%
 Increased pension
contributions
from 6% to
• Employer
contribution
6.4% to 14%
limited
Employer
•  Final
salarycontribution
scheme
limited to 14%
maintained

Final salary scheme
maintained
Example: NHS
•
NHS
Increased pension
contributions from 6%
 toChanged
between pension
5% and 8.5%
contributions from 6%
to between
5% and
8.5%
• Higher
contribution
rates
for
higher pay bands.
 Lower
Employer
contribution
contribution
rateslimited
for
to 14%
lower
pay bands
Final salary
scheme limited
•  Employer
contribution
tomaintained
14%
•
Final salary scheme
maintained
…and in the private sector
Common changes

many final salary schemes closed to new employees

changes to benefits, contribution levels and pension age for
existing employees

final salary schemes being replaced – in particular by money
purchase
What next?
From
January 2007
 Plans
announced
From
April 2007
 Baseline
scheme
valuation
From
July 2007
 New pension
scheme
introduced for
 Detailed
future civil
discussions with  New governance
servants
unions start
arrangements
From
April 2010
 Scheme
valuation
 Outcome of
valuation
considered within
new governance
framework
 Any changes
unlikely before
2012
Further information
Look out for: Office notice
 Questions and Answers
 Information on CSP website
www.civilservice-pensions.gov.uk
Key messages
 Our pension arrangements are
 Government is committed to
providing pensions that are:
• High quality
intended to be:
•
•
•
Affordable for both employer
and employee
Kept within specific cost
parameters
•
•
•
Defined benefit
Index-linked
Sustainable
Competitive
 Shared approach to future cost
increases
 Existing staff maintain current

pension benefits and pension age
New defined benefit scheme for
new employees with pension age
65