DPF Briefing

January 2005

Proposals for changes to the Civil Service Pension arrangements

Your attention is drawn to the detailed notice issued by the Cabinet Office in line with consultation procedures in respect of the above subject. All DPF members are strongly urged to visit the Cabinet Office Pensions website as detailed in the document and fully converse themselves with the paper ‘Building a sustainable future’.

We ask that all members of the DPF use the ‘Ready Reckoner’ which can be found on this website http://www.civilservice-pensions.gov.uk/Menu.asp?MenuIDS=409. We further ask that you print off and post the result to DPFHQ, this will allow us to evidence, based on the figures received through their process, how many of our members will be disadvantaged by the proposed changes. We also ask that members make use of the feedback facility which is provided in line with consultation procedures.

DPF National Officers are in communication with CCSU to exercise a united response in respect of the wider proposals contained in the paper. Early views expressed are to oppose in principle the compulsory move of pension age to 65, to put back operative date (2013) and to seek a no detriment clause to give choice to existing staff. Membership will be fully informed as the response is finalised.

In respect of MDP specifically being a special case for retaining retirement age of 60, DPF are pursuing in conjunction with PP& IR, MoD Centre agreement on the funding issue.

Proposals have been announced for modernising the Civil Service pension arrangements. These proposals have been developed with and agreed by the Civil Service Management Board. The Cabinet Office is seeking consultation on the proposals.

The government has already announced plans to change the pension age for all public sector pension schemes to 65. This necessary change reflects the increase in life expectancy which means that people are now living nearly one third as long again after they reach pension age than they were in the early 1970s. Paying pensions for this period of time is unsustainable but Cabinet Office are proposing to share the savings (equivalent of 2% of the pay bill once the changes are fully in place) between employees and employers. The consultation includes questions about how that money might be spent.

The main change proposed to the pension arrangements is a shift from a final salary model to one in which pension entitlement builds up annually. The Civil Service Management Board has decided to retain a defined benefit scheme, based on salary, despite the fact that elsewhere in the economy many private sector employers are walking away from defined benefit and towards defined contribution schemes in which the risk is borne by the individual.

The new model will generally be fairer to people who are lower paid, people who take breaks in mid- career, late joiners and early leavers. It is not a cost- cutting measure.

The Cabinet Office proposes a long transition period for staff currently in post. This will include the move to pension age 65 which has already been announced and which applies across the public sector as a whole. This change will not affect any current members of staff born before 1 April 1953 who retire at or before age 60.

Employers will continue to contribute to the scheme as they do now (the underlying cost to the Exchequer is currently 19.4% of pay on average); employees will continue to contribute relatively little. Elsewhere in the economy many employers are reducing their support.

These changes will put Civil Service pensions on a more sustainable and modern footing while remaining very competitive compared to those available in the wider economy. Cabinet Office are consulting widely about the details of the changes and you are invited to respond.

Cabinet Office has published their consultation document ‘Building a sustainable future’ setting out outline proposals for change to the Civil Service pension arrangements. This is available on http://www.civilservice-pensions.gov.uk .

Cabinet Office will develop the details in consultation with the Civil Service unions, but they also welcome the views of employers, members and other interested parties. We set out below how to respond.

Background

Cabinet Office introduced changes to Civil Service pension arrangements in 2002 which widened the options available to new entrants and introduced features that members said they would like. All members in post on 30 September 2002 had the chance to move to a revised version of the Civil Service final salary pension scheme. However there are a number of reasons why Cabinet Office are proposing these changes now.

• The Civil Service is undergoing a major programme of reform. The pension arrangements need to reflect these changes;

• Employment patterns are changing and Civil Service pension arrangements need to fit with these;

• There are legislative and other changes coming in the next few years that were not apparent when Cabinet Office introduced new arrangements in 2002;

The proposals in brief

Cabinet Office propose that the changes they are putting forward apply to new entrants from 6 April 2006 and staff currently in post from 1 April 2013 (with no change to pension rights earned before that date). Their two main proposals are:

1. Civil Service pensions should be based on a proportion of pay earned in each and every year of service, rather than on a proportion of the pay earned shortly before retirement. The reason for moving to a scheme that builds up the member’s pension in this way is to improve fairness. It is not a cost- cutting measure.

2. In line with Government policy the pension age will be 65.

Pension age 65 does not mean you have to work to 65. The age at which you retire is a matter for yourself and your employer. Existing members will be able to leave and draw any benefits that you have built up under either the current or the new arrangements from age 50 onwards (55 for members joining from April 2006), but benefits will be reduced if you draw them before pension age to reflect the fact that you will be receiving them for longer. Benefits will become payable in full under the new arrangements at the pension age of 65. Any benefits earned in premium, classic or classic plus before April 2013 will remain payable in full on leaving service at or after the pension age of 60.

The details of the proposed changes can be found in the consultation document ‘Building a sustainable future’. Please read it carefully.

Cabinet Office propose to have transitional arrangements for staff in post on 5 April 2006 who are still in post on 1 April 2013. Section 5 of ‘Building a sustainable future’ explains their proposals.

The consultation process

Cabinet Office’s proposals affect a significant proportion of the Civil Service so they want to consult widely. They are inviting all interested parties to respond if they wish. Cabinet Office are following the Government’s Code of Practice on Consultation during this exercise. To support this consultation they are publishing:

• ‘Building a sustainable future’. They are making this available through their website http://www.civilservice-pensions.gov.uk/consultation and in hard copy for those that want it.

• A Feedback form to allow those who wish to respond to do so. Again this will be available on their website (with the means to submit it directly from their site) and in hard copy.

• Attached to this notice at Appendix 1 is a number of Questions and Answers (Q& As) prepared by Cabinet Office that are designed to deal with any initial queries. Further Q& As are available on their website.

• A ‘Ready Reckoner’ on our website www. civilservice- pensions. gov. uk/ consultation which gives a projection as to how these changes may affect you. If you do not have access to their website, or to Excel then please ask your pensions administrator to run the Ready Reckoner for you.

How to respond to the consultation On the web page www. civilservice- pensions. gov. uk/ consultation you will find: ‘Building a sustainable future’ – the document setting out the proposals for change.

Feedback form – for online completion and submission to Civil Service Pensions Division. Feedback form in Word version – for those who want to copy the form elsewhere and fill it in to submit by e- mail to consultationresponse@ cabinet- office. x. gsi. gov. uk This form may also be printed off, completed by hand and sent to:

FREEPOST RLSH- TLEH- EAAX
Consultation Response
P0 Box 8384
MANSFIELD,
Notts,
NG18 4WP

If you do not have web or intranet access you can obtain a hard copy of the ‘Building a sustainable future’ and Feedback form by contacting:

Consultation
PO Box 8385
MANSFIELD, Notts, NG18 4WL

Fax: 0870 240 3035
Email: consultation2@cabinet-office.x.gsi.gov.uk

Feedback forms must be received by Cabinet Office by the closing date 4th March 2005

Cabinet Office will use any personal data that you supply on your Feedback form for the purposes of statistical analysis only. All information provided will be handled in accordance with the Data Protection and Freedom of Information Acts.

Note: These contact points are only for the purposes of this consultation exercise. If you have queries about your pension please contact your pensions administrator.

Follow- up
Cabinet Office will make the results of this consultation exercise public. They will publish feedback analysis on their website after the end of the consultation period. Please be assured that it will not be possible to identify individual responses from these results.