Public Service Pension reforms: frequently asked questions

Why has the Public Service Pensions Act 2013 been introduced?

The Public Service Pensions Act 2013 legislates for changes that aim to balance the cost risks more fairly between members and employers. New schemes will be implemented that offer a fairer distribution of benefits across scheme membership. The Act establishes a common framework across the schemes.

What are the key things that the Act enacts?

The main changes are:

Retaining a defined benefit pension scheme but moving from final salary to career average (with the exception of those schemes that are already career average schemes).
Removing a scheme specific normal pension age and linking normal pension ages to State pension age (except for firefighters, police and the armed forces, where normal pension age will be age 60, subject to regular reviews).
Introducing an employer cost cap to ensure unforeseen changes in cost are controlled to protect the taxpayer.
Those ten years from their normal pension age on 1 April 2012 will not see any change in when they can retire nor any decrease in pension they receive on retirement.

You can find copies the announcements of each scheme design by visiting the relevant website.

What are the main differences between a final salary and a career average pension scheme?

A final salary pension scheme uses the member’s final pensionable earnings when calculating pension benefits while a career average pension scheme looks at earnings throughout the member’s career. Both are defined benefit pension schemes.

Will members be better or worse off in a career average scheme?

The overall value of a pension depends on unique individual factors; including, period of employment, career progression, salary and personal financial decisions. However, the Independent Public Service Pensions Commission found that a career average scheme structure is likely to benefit those with lower salary growth more than higher earners. Career average schemes tend to be better for workers who expect to have a steadier increase in salary each year.

Most low and middle earners, working a full career, will receive pension benefits at least as good – if not better – than they would get now.

When will the new schemes be in place?

Members will start earning benefits in the new scheme from April 2015 (2014 for the Local Government Pension Scheme).

Will employees have to work to their State pension age?

Members will be able choose when they wish to retire. Pension benefits earned from April 2015 (2014 for the Local Government Pension Scheme) will be calculated on the assumption that the member works until their State pension age; the pension will be adjusted if they retire before or after their scheme’s normal pension age. Most schemes offer online calculators to help members work out how much pension benefits they might receive at different retirement ages.

Normal pension ages will be set at age 60 in the police, firefighters’ and armed forces schemes, subject to regular review.

What will happen to the benefits members have earned up to the implementation of the new schemes?

The pension benefits members have already earned will be protected. At retirement, pension benefits will be worked out in two parts:

1. The benefits earned in the original scheme and;
2. The benefits earned after the proposed changes are introduced.

Members will keep all the pension benefits already earned for the years worked before April 2015 (2014 for the Local Government Pension Scheme):

These benefits will be worked out in the same way as they are now;
Members will be able to take them at the same normal pension age as now;
Benefits earned in a final salary scheme will be based on the member’s final pensionable earnings at the date they retire or leave the pension scheme (not the salary at the point they move to the new scheme).
For current Local Government Pension Scheme members any remaining ‘Rule of 85’ protection will still apply. A leaflet has been produced by the Local Government Pension Scheme which gives more information: LGPS Rule of 85 protection leaflet (PDF 94KB)

Does the Actcover pension schemes offered by Non-Departmental Public Bodies?

Non-Departmental Public Bodies (NDPBs) and other types of public bodies pension schemes will also be reformed to a separate timetable, with new schemes in place no later than April 2018.

What about increased member contribution rates?

Member contribution increases are not legislated for under the Act.

The Government announced at the 2010 Spending Review that it planned to increase contributions by an average of 3.2 percentage points over the three years up to 2015 saving £1.2bn in 2012-13, £2.3bn in 2013-14 and £2.8bn in 2014-15.