Public service pension offer aims for fairness

Summary

As longevity has increased costs for public service pensions, the Government intends to reform the system to ensure their provision whilst easing the financial burden for other taxpayers.

The Treasury sets out the preferred scheme design for public service pensions in 'Public Service Pensions: Good Pensions that Last’ (Cm. 8214), built on points made by Lord Hutton in his report 'Independent Public Service Pensions Commission: Final Report’.

The cost of public service pensions paid out has risen by more than a third over the last ten years to £32 billion a year. Reforms to date have been insufficient to reverse the increase in costs of public service schemes from rising longevity.

The Government offers:

benefits already earned to be protected;
past benefits for those in final salary schemes to be linked to their final salary when they leave the scheme or retire;
public service workers with ten years or less to their current pension age to see no change in when they can retire; and
continuation of more payment by the Government toward pension benefits than the workforce.

The scheme design will ensure:

guaranteed, index-linked pension benefits on retirement;
an accrual rate of 1/60ths and earnings indexation for benefits while still working in the public service;
fairer distribution of benefits across the workforce; and
that most low and middle earners working a full career will receive pension benefits at least as good as they get now.

But in return, the Government is asking public service workers to pay more towards their pensions and work a bit longer.

The Government's offer is conditional on the trades unions and the Government reaching agreement on the reforms.

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