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FAQs scheme members

By Kathleen Andrews,2014-04-15 08:41
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Since the PSF agreement Cabinet Office has had constructive discussions with the Civil Service Unions on the high level design of the pension scheme for new

    Questions and Answers for scheme members

    1 What is the Government doing to Civil Service and By Analogy

    scheme pensions?

    Cabinet Office Minister, Pat McFadden MP, has written to the Council of Civil

    Service Unions (CCSU) outlining the Government’s plans for changes to Civil

    Service and By Analogy scheme pensions. The key features are set out in

    the Office Notice to staff.

    2 Why can’t the Government leave our pensions alone?

    People are generally living and working for longer and public service pension

    arrangements need to reflect these changes. The Government and the public

    service unions agreed, in negotiations in 2005, that new entrants would

    receive pensions reflecting a pension age of 65. But the Government also

    agreed that existing public servants’ schemes would continue to provide a

    pension at 60.

    Both the Government and the trades unions recognise that public service

    pension schemes need to be sustainable in the long term. This means that

    they need to be able to respond to future cost increases in a way which is fair

    to tax payers as well as to staff. So, if costs increase in the future over and

    above the level currently expected, the Government intends to share the

    effect of this between employers and staff rather than employers paying the

    full extra cost (see Q6).

    3 Why will new entrants get a different sort of pension?

    As well as having a pension age of 65, rather than 60, the Civil Service and

    By Ananlogy schemes for new entrants joining on or after 1 July 2007 will

    be designed to reflect earnings throughout members’ careers. This is

    intended to produce a fairer outcome for members generally, especially those

    whose earnings peak in mid-career and those who do not spend their entire

    career within their scheme. There are further details in the new scheme

    factsheet.

    4 What does this mean for me now?

    Nothing you will still be able to retire and take your pension without

    reduction at age 60 and it will be based on your service and your final salary

    (as defined in scheme rules).

    4a I thought my pension was changing in 2013?

    The proposals published on 9 January 2007 replace those set out in the

    consultation document Building a Sustainable Future (published on 9

    December 2004).

    4b I’m in classic. Can I transfer to classic plus?

    No. The Pension Choices exercise in 2002 was a one-off opportunity to

    change into a new scheme.

    4c I’m retiring in April 2007. Will this affect me?

    There won’t be any effect on your pension. But if you are re-employed in the

    future, you may find that any further pension build-up is in the new scheme.

    4e I chose not to join the pension scheme. What happens to me?

    If you change your mind in the future you will “opt in” to the same pension

    scheme you opted out of.

    4f I have a deferred pension. Is that affected by these proposals?

    No.

5 Will my scheme change in the future?

    Cabinet Office will discuss, with the Civil Service unions, the possibility of

    agreeing changes to scheme rules to introduce flexibilities permitted by recent

    tax changes (for example a higher tax free lump sum). Any additional

    features for current staff are unlikely to be introduced before July 2007 and

    may be later.

    In the event that scheme costs increase unexpectedly in the future, Cabinet

    Office will discuss with Civil Service unions and employers, how the increased

    costs are to be paid for.

5a Will you extend unmarried partner benefits to classic?

    Highly unlikely. This was one of the reasons we offered members the option,

    in 2002, to go into premium or classic plus.

6 Will I have to pay more for my pension?

    The Government’s plans do not include changes to your contribution rate.

    For the time being, you will carry on paying 1.5% of pensionable earnings if

    you are a member of classic and 3.5% of pensionable earnings if you are a

    member of premium or of classic plus.

    For the future, the Government has made clear that, if there are unexpected

    changes in scheme costs at future actuarial valuations, the effect will be

    shared between employers and employees and that average Civil Service

    employer contributions will be capped at a maximum of 20% of pay (their

    average employer contribution is currently 19.4% of pay). This does not

    necessarily mean that you will pay more in the future costs may not

    increase and, even if they do, Cabinet Office will consider with unions and

    employers the best way of solving the problem. For instance, a more

acceptable solution might be to change the way benefits build up in the future.

    The Government does not expect any change to happen as a result of its

    cost-sharing plans before 2012 at the earliest.

    6a What do you mean by “unexpected costs”?

    At each valuation, the actuary makes certain assumptions for instance, in

    relation to how long people are likely to live, pay rises and so on. At the next

    valuation, the actuary then looks as what has actually happened and reassesses

    the assumptions for the future. “Unexpected costs” will include first, the

    difference between reality and the assumptions used for the previous period

    and, second, the changes in assumptions looking to the future. So, for instance,

    if pay rises have been lower than the actuary had assumed, this would feed

    through as a cost reduction. But if people are living longer than assumed at the

    last valuation, this would feed through as a cost increase.

    6c Who pays the costs of early retirements?

    The full cost of early retirements are met by the employer who is authorising

    the early retirement. These costs are not picked up by the scheme and so won’t

    feed through as “unexpected cost increases”. The only exception to this is ill-

    health retirements; these costs are met by the scheme.

    7 What happens if costs go down?

    If there are unexpected decreases in scheme costs in the future the effect will

    be shared between employers and employees, subject to the cap on average

    Civil Service employer contributions of 20% of pay.

    8 I thought my contribution rate was fixed?

    Your contribution rate will only change in the future if circumstances change

    and the Government decides, in consultation with the unions, to increase

    member contributions rather than changing the way benefits build up in the

    future. You will be given plenty of notice of any change (either to future

    benefits or your contribution rate) and we do not expect anything to happen

    before April 2012.

    8a This is like a “red letter” from my endowment company!

    It is important to realise that no change is planned before 2012 at the earliest,

    and then only if necessary to deal with future unexpected cost increases.

    Furthermore, any changes will not affect the benefits that you have already

    built up before the date of change.

    9 We don’t have a pension fund, so what do you mean by “if costs

    increase?

    Although we don’t have a fund this does not mean that our pensions are free.

    Employers pay contributions each year based on how much the pension you

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11c I’m over 60. Why can’t I buy added years?

    Added years contracts are designed and costed around pension age (60) so

    they don’t work when people are over 60. We plan to introduce a different

    way of buying extra pension, which will work at all ages. In the meantime you

    can top up your pension through the stakeholder pension or the AVC scheme

    even if you’re over 60.

12 I’m planning to work to 65 anyway, so the scheme for new entrants

    might be better for me. Can I transfer across?

    The consultation on Building a Sustainable Future made clear that existing

    staff wanted, overwhelmingly, to carry on in their current scheme. The

    Government has no current plans to open the new scheme to existing staff.

13 What happens if I leave the scheme and then wish to rejoin in the future?

    Will I go back into my current pension scheme or into the new scheme?

    This is one of the matters of detail that Cabinet Office will discuss with the

    Civil Service Unions shortly

13a If I am re-employed in the future, will my pension be abated?

    There are no proposals to scrap abatement, although it may be simplified.

    What this means is that you cannot earn more, as a re-employed pensioner, by

    way of your scheme pension plus re-employed salary than you were earning

    before you retired. This is not usually a problem if you are going to be re-

    employed part-time or in a lower paid job.

14 Can I retire before pension age?

    You can retire and draw your pension before pension age if you want to, but

    your pension will usually be reduced to reflect the fact that it is being paid for

    more years. For instance, if you chose to retire 5 years before pension age

    (ie at 55) your pension would be reduced, permanently, by about 25%.

    14a Is the Compensation Scheme changing?

    Probably, but not just yet. Cabinet Office will consult with employers and

    unions before publicising any proposals for change.

    15 How do you justify having a two-tier workforce in the future with

    different pension schemes and different pension ages?

    Many employers, both in the private and public sectors, operate different

    pension arrangements for new entrants. This allows employers to take steps

    to control costs, or implement more appropriate pension arrangements, whilst

    recognising existing employees’ reasonable expectations.

    16 How have the Unions been involved in coming up with the plans?

    Special sessions of the Public Services Forum (PSF), chaired by the then Minister for Work and Pensions, Alan Johnson had constructive discussions on pension age reforms for all major public sector pension schemes in 2005. The purpose of the Public Services Forum is to improve the dialogue between Government, public service employers and trade unions on public service and workforce reform to improve the delivery and citizen’s experience of public

    services

    These discussions set out agreed principles within which individual public sector schemes would make proposals for pension reform.

    Since the PSF agreement Cabinet Office has had constructive discussions with the Civil Service Unions on the high level design of the pension scheme for new entrants and will now work with the Civil Service unions to develop the fine detail.

    17 What do the Civil Service unions think of the plans?

    The Civil Service unions’ response has been broadly positive. They have

    said that they think the proposals for the new scheme for new entrants are radical but will deliver good quality pensions while being more equitable and better suited to likely future employment patterns. On the cost-sharing proposals, the unions agree that the scheme needs to be sustainable, but think that the time to come up with approaches to handling cost increases is when the problem arises, rather than now.

    18 How do I find out more?

    See the News section on the JSS website www.jsspensions.org.uk

    19 How do I have my say?

    You can email your comments to jss.statements@bbsrc.ac.uk. These will be

    forwarded to the Cabinet Office. They cannot answer individually but will publish a summary of comments received on their website and will update these Q & As as appropriate.

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