Public Service Pensions - Frequently asked questions

Here we answer some of the questions you have been asking over recent months, including why these changes are being put forward and what they could mean for you.

If you have a question that you think may be of interest to other public servants, please email us at publicpensions@hmtreasury.gsi.gov.uk

Background
The proposed new scheme
Retiring
Contributions
General questions

Background

What are the changes?

The Government has agreed, with employers and the majority of trades unions, the final scheme designs for the pension schemes for Teachers, the National Health Service and Civil Servants. The details of the scheme designs are set out on their websites:

NHS Pension Scheme
Teachers Pension Scheme
Principal Civil Service Pension Scheme

Most public service workers will be asked to contribute more towards the cost of providing their pension benefits from April 2012 – the average increase will be 1.3 % of pay but the amount you pay will depend on how much you earn and which pension scheme you belong to.

Contributions will increase again in 2013 and 2014. Each scheme will consult on how to implement this in due course.

It is proposed that each pension scheme will change for benefits earned from April 2015 as follows:

Benefits will be earned on a career average basis;
A pension age linked to State pension age except for the police, armed forces and firefighters;
Your benefits earned up to April 2015 will be protected.

When are these changes happening?

We have announced the final scheme design for the pension schemes for Teachers, the National Health Service and the Civil Service. The proposed changes to other public service schemes are still under consideration and will not be introduced before 2015 (2014 for the Local Government Pension Scheme).

The proposed new scheme

I am a member of the Local Government Pension Scheme (LGPS) how am I affected?

The LGPS is different from other public service pension schemes in that it is a funded scheme where benefits are paid from the investments of contributions from members and employers. In recognition of this, the Government has announced that the LGPS can have greater flexibility in how it achieves the cost savings sought.

Following talks between the unions, employer representatives and the Government it has been agreed to introduce an alternative ‘one step’ solution. If this goes ahead, a new LGPS scheme design will be introduced from 2014.

We will continue to update our pages as information becomes available.You might also like to check the LGPS website.

How does a career average scheme work?

At the moment, for most public servants, your pension is based on your final salary at or near retirement. This is known as a final salary scheme. In a career average scheme your pension will be worked out using the salary you earn each year during your career rather than your salary at retirement.

Will my benefits be lower in the career average scheme?

It will depend on your circumstances – for example final salary schemes are generally better if you expect to be promoted regularly and have your highest salary at, or very near, your scheme’s Normal Pension Age. Career average schemes may be better if you expect to have a steadier increase in your salary each year. The Government has made it clear that its proposals will ensure that most low and middle earners, working a full career, will receive pension benefits at retirement that are at least as good, if not better, than their current scheme provides. Whether your new scheme will be better for you depends on a number of factors and we cannot provide advice.

Are you taking away the benefits I have already earned?

No. Under the proposals, the pension you have already earned will be protected. This means your pension would be worked out in two parts:

benefits you will have earned before proposed changes are introduced and;
benefits you will earn after the proposed changes.

You will keep all the pension benefits you have already earned for the years you have worked before the reforms come into effect:

These benefits will be worked out in the same way as they are now;
You will be able to take them at the same Normal Pension Age as now;
If you are in a final salary scheme, your benefits will be based on your final salary at the date you retire or leave your pension scheme.

I am in the Civil Service Partnership scheme – how am I affected?

The Partnership scheme is not covered by these reforms to public service pensions.

Retiring

What is my State Pension Age?

You can find your State Pension Age on the 'planning for retirement' section of the DirectGov website (opens in a new window).

Will I have to work longer?

You will be able to retire and take the benefits you have earned up to 2015 at the same date as you can now – that is not changing.

Pension benefits earned from 2015 will be calculated on the assumption that you work until State Pension Age. Nobody will be made to work longer, but If you retire earlier your pension benefits will be reduced to take account of the fact they will be paid for longer. Further details on how this will work will be set out in the final scheme designs.

The State Pension Age is changing. You can find your State Pension Age on the 'Planning for retirement' section of the DirectGov website (opens in a new window).

If, on 1 April 2012, you are within ten years of your current Normal Pension Age, the Government’s objective is that you will see no change in when you can retire and no reduction in the amount of pension you receive at Normal Pension Age. Schemes and Trades Unions are working together to apply this objective in the fairest way.

This date has been chosen because more details of the new schemes will be available at that time enabling members closest to retirement to plan ahead.

I wanted to retire early and am within 10 years of my chosen early retirement age. Will I be protected?

If, on 1 April 2012, you are within 10 years of your scheme’s Normal Pension Age (age 60 or 65 for most people) then your benefits on retiring at Normal Pension Age will be unchanged .

If you are more than 10 years from your scheme’s Normal Pension Age at 1 April 2012 you will be included in reforms. However, Schemes and Trades Unions are working together to find a fair way of giving some additional protection to members who are within 13 – 14 years of their Normal Pension Age. Further details will be set out in the final scheme designs.

If you are able to, and choose to, retire before your Normal Pension Age, your pension will be adjusted to reflect the fact that it is being paid before Normal Pension Age. So if your Normal Pension Age is 60 and you retire at 55 your pension would be reduced to allow for the extra 5 years of payment.

I was looking forward to retiring at 60, when I will have completed over 37 years’ service, but I will be 49 in May 2012. Will I miss out on the protection being offered to those ‘closest to retirement’?

The Government’s objective is to provide you with some additional protection. Schemes and Trades Unions are working together to find a fair way of giving some additional protection to members who are 13 – 14 years from their Normal Pension Age on 1 April 2012. Further details will be set out in the final scheme design for your scheme.

I find it unfair that colleagues who will be 50 on 1 April 2012 will enjoy better protection than me when in some cases they have considerably less service.

The benefits you have earned before 2015 will be fully protected and you will still be able to take them at your current Normal Pension Age. This means that a higher proportion of your benefits will protected under the proposed reforms than your colleagues who joined more recently.

Why is the effective date for protecting those closest to retirement 1 April 2012?

This date has been chosen because more details of the new schemes will be available at that time enabling members closest to retirement to plan ahead.

I am 55 and my scheme’s normal pension age is 60. How am I affected?

The Government has set an objective that those within 10 years of the normal pension age on 1 April 2012 see no change in when they can retire and no reduction in the amount of pension they receive at that age. Schemes and Trades Unions are working together to apply this objective in the fairest way.

I intend to retire early at 55 and I am 45 now. Will I be protected?

You should first check your latest pension scheme benefit statement to find out what your normal pension age is.

What about groups who have traditionally had lower normal pension ages such as police officers and mental health officers?

The Independent Public Service Pension Commission recommended a Normal Pension Age of 60 for firefighters, police and armed forces. The final scheme design for firefighters sets out a Normal Pension Age of 60. The Government has also proposed a Normal Pension Age of 60 for the police pension scheme in its preferred scheme design (announced on 27 March), as recommended by the Winsor Report. . Details of the proposed scheme design for the Armed Forces’ pension scheme will be set out in due course.

I am a mental health officer (MHO). Will I lose my MHO status and right to retire at age 55?

Under the proposals, the benefits you will have earned up to 2015 will be protected and payable at age 55 if that is your current Normal Pension Age.

If on 1 April 2012 you will be 45 or older, then you will be able to retire at 55 on the same benefits as you would have done had the proposals not gone ahead.

Lord Hutton recommended a Normal Pension Age of 60 for police officers, fire fighters and armed forces, to reflect the ‘unique characteristics’ of the job they do. I am a prison officer and our work can be equally stressful. Is the Government prepared to consider a normal retirement age of 60 for us too?

The new scheme design does not provide for a lower Normal Pension Age for prison officers. Newly recruited prison officers already have a Normal Pension Age of 65.

Won’t this just encourage people in their 50s to leave the private sector and work in public service, just to get a final salary pension at retirement?

No. The protection only applies to existing scheme members who are within 10 years of their normal pension age.

Contributions

Is the increase in my contributions simply a levy on public servants to pay for the bankers’ / deficit?

No. The independent review of public service pensions, chaired by Lord Hutton, set out the clear rationale to increase contributions to ensure a fairer distribution of costs between employers and members. Hutton also looked in detail at how to deliver short term savings and concluded that contribution increases are the most effective way.

The main public service pension schemes are unfunded (with the exception of the Local Government Pension Scheme), so pension benefits are paid directly by Government. The pension benefits paid are offset by contributions from members and employers, but in most do not currently cover the costs of the pensions paid.

We are living longer and so schemes have to pay pensions for longer. While this is good news, it does mean that providing a pension scheme is becoming increasingly expensive.

My contract of employment says that I am entitled to a non-contributory pension. I consider any change to this to be a breach of contract.

Contributions were already due to go up in 2012 following an agreement between the unions and the previous government in 2009.

The cost of public service pensions has increased significantly as a result of improved life expectancy, but the additional costs have mainly fallen to employers. The independent review of public service pensions, chaired by Lord Hutton, set out the clear rationale to increase contributions to ensure a fairer distribution of costs between taxpayers and members.

This 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. Schemes have consulted their members on contribution increases in 2012 and those increase are part of the planned increases up to 2015.

Why are you doing this in the middle of a pay freeze and with high inflation?

The Government recognises that people are feeling squeezed but tough choices are necessary to deal with rising costs of providing pensions. The costs of public service pensions have risen by a third over the last decade – rebalancing these will help protect public services and public sector jobs.

Remember, if you pay tax you receive tax relief on your contributions so the amount deducted from your pay is lower than the headline figure.

How does tax relief work?

Your pension contributions are deducted before tax. This means that any tax you pay is worked out using your earnings after pension contributions have been deducted. This means that you pay less tax if you are a member of a pension scheme than if you are not.

Tax relief reduces the cost of pension contributions by 20% for basic rate taxpayers, by 40% for higher rate taxpayers and by 50% for additional rate taxpayers.

General questions

How can I find out how I will be personally affected? Schemes have produced a contribution calculator which allows you to enter personal information to find out what you will pay from April 2012. You can access these calculators by using the links below:

Final scheme designs have been set out for Teachers, the National Health Service and Civil Servants. Agreements on the other schemes will be announced when discussions conclude. Your scheme will then provide more information to allow you to understand what the changes will mean to you.

I left the civil service in 2006. Are the benefits earned while a member of the civil service pension scheme protected? My scheme’s Normal Pension Age is 60 and I was born in 1962.

The reforms to the public service pension schemes do not apply to benefits you earn before 2015. So you will still be able to take these benefits you have earned at your current normal pension age.

How is Fair Deal protection affected by the proposals?

The Fair Deal policy applies where a public service is outsourced and requires the new employer to provide a broadly comparable pension scheme for the transferred staff and bulk transfer arrangements for those staff who wish to transfer their public service pension benefits.

The consultation on the Fair Deal closed on 15 July 2011.

On the basis that the new scheme designs are agreed, the Government agrees to retain Fair Deal provision and extend access to public service pension schemes for transferring staff. This means that all staff whose employment is compulsorily transferred under TUPE, including subsequent TUPE transfers, will still be able to retain membership of the Pension Scheme when transferred. These arrangements will replace the current provisions for bulk transfers under Fair Deal, which will no longer apply.

I’ve heard that my scheme is affordable and that these changes are not necessary

The fact is people are living much longer – the average 60 year old is living ten years longer now than they did in the 1970s. This means they are receiving their pensions for longer and so it becomes increasingly expensive to provide these.

The cost of public service pensions has increased by 40% over the last 50 years and it has mainly been the employers that have met these additional costs.

Why shouldn’t I opt out?

Only you can make the decision about whether to remain in the scheme or not. The Government cannot provide advice on this and nor can your scheme administrators. However, most public servants are likely to be financially worse off in the long term if they opted out.

Your employer currently pays a significant amount of money into your pension each month. If you opt out of your public service pension, you will lose the employer’s pension contributions and you would not receive any extra money from your employer in your salary. Your scheme also provides valuable protection for your dependants if you die before retirement.

You would need to make separate savings to plan for your retirement if you opted out. Even if you decided to opt out and save all the money that you are currently paying into your public service pension, it would not be possible to buy equivalent pension benefits in a private personal pension scheme at the same price. Most people would need to pay about 30% of their salary to buy comparable benefits.

Will MPs and ministers have to pay more too?

The Leader of the House has passed a motion that the Independent Parliamentary Standards Authority (IPSA) should introduce a new pension scheme for MPs by 2015, on a similar timetable to other public service pension reform. The Government has already stated its expectation that the current final salary scheme will end.

Ministers will also pay more for their pensions, in line with the increases seen by other public servants.