Principal Civil Service Pension Scheme

Monday 12th March 2012 Written Statements

[The Minister for the Cabinet Office and Paymaster General (Mr Francis Maude)]

On 20 December I reported to the House on the heads of agreement on the principal civil service pension scheme to be introduced in 2015, which set out the Government’s final position on the main elements of scheme design. Since 20 December, my officials have been engaged in detailed discussions with the civil service trade unions over the remaining details of the principal civil service pension scheme. I can now report to the House that discussions on these final details of the scheme design for the principal civil service pension scheme to be introduced in 2015 have now concluded. The Government have made it clear this sets out our final position on scheme design, which we are asking unions to take to their Executives as the outcome of negotiations.

This is the proposed final agreement which reflects the conclusion of discussions on the final details with the civil service unions since I made my written ministerial statement on pension reform, on 20 December 2011, Official Report, column 150WS. The headline elements of the proposed final agreement remain unchanged from those reached on 20 December and the provisional accrual rate has been finalised.

The core parameters of the new scheme are set out below:

a. a pension scheme design based on career average;

b. a provisional accrual rate of 2.32% (equivalent to (1/43.1) of pensionable earnings each year;

c. revaluation of active members’ benefits in line with CPI; (any change in the method of indexation will be subject to consultation)

d. a normal pension age equal to state pension age, which applies both to active members and deferred members (for new scheme service only). If a member’s SPA rises, then NPA will do so too for all post-2015 service;

e. pensions in payment to increase in line with prices (currently CPI);

f. benefits earned in deferment to increase in line with prices (currently CPI);

g. average member contributions of 5.6%;

h. optional lump sum commutation at a rate of 12:1, in accordance with HMRC limits and regulations;

i. spouses/partner pension of three-eighths pension, in line with the current open scheme;

j. lump sum on death in service of two times salary;

k. ill-health benefits in line with those in the current open scheme;

l. actuarially fair early/late retirement factors on a cost-neutral basis;

m. an employer contribution cap and floor to provide backstop protection to the taxpayer against unforeseen costs and risks. This floor will also allow for an improvement in member benefits if the value of the scheme falls beyond a fixed level;

n. abatement will not apply for post-2015 service in the new scheme when members return from retirement. Abatement rules for the current schemes will remain unchanged;

o. partial retirement rules for service in the new scheme will follow existing partial retirement rules. Members with service in both the existing and the new scheme will be able to apply for partial retirement under each scheme, under the limits that exist in current schemes;

p. members will be able to take any pension they have accrued under their existing schemes without having to also take any new scheme pension at the same time, under the limits that exist in current schemes;

q. for members wishing to retire before their state pension age, there will be an opportunity to pay additional contributions to fund earlier retirement of up to three years without an actuarial reduction. Contributions will ordinarily be payable by members, but individual employers will be able to choose to provide a contribution in very limited and exceptional circumstances, that must be approved by the Cabinet Office;

r. existing added years contracts will continue in the new scheme;

s. added pension arrangements will continue;

t. members who leave the new scheme and return within five years will have their deferred benefits increased as if they had been an active member. (The rate of dynamisation for active and deferred members will however be the same, as set out in points c and f above); and

u. the Public Sector Transfer Club will continue, and consideration will be given to the best method of operation in the reformed schemes, following further discussion with trade unions;

The scheme actuary has confirmed that this scheme design does not exceed the cost ceiling set by the Government on 2 November. Copies of the heads of agreement and scheme actuary verification have been deposited in the Libraries of both Houses.