Future civil servants could be forced to work until they are aged 65 years and see their pensions based on their average salary over their term of employment under the terms of government proposals currently being to put to unions.
These would mean that staff who join the civil service from July this year will have to work until 65 years and their pension will not be linked to their final salary. The deal permits existing civil servants to retire at age 60 years and keep their final salary pension benefits.
The existing civil service scheme provides employees with an index-linked pension of 1/60th of final salary for each year of service from a normal retirement age of 60 years. The proposed career average revalued earnings (Care) scheme for civil servants provides a pension from age 65 years of 2.3%, or approximately 1/43.5, of average salary for each year of service, revalued in line with prices both before and after the pension comes into payment.
Pat McFadden, the Cabinet Office Minister, has also said that the government is putting a cap on taxpayer contributions for civil service pensions. If the cost of the pensions rise above what is currently anticipated then a cap will be imposed on any future increase in taxpayers’ liability. In this instance, employees will have to either pay higher contributions or accept smaller pensions.
Stephen Yeo, senior consultant at Watson Wyatt, said: "I welcome the Cabinet Office’s choice of a career average revalued earnings scheme for the civil service. Such a scheme provides equality between members with different salary progression and between those who leave service and those who stay. I feel such a design is more likely to stand the test of time than the more common final salary scheme with its inherent unequal treatment of different classes of member."
"Although the new scheme is designed to be cost neutral, I would question whether future high flyers will be happy to work for so much less reward, in pension terms, than now. It could be that some of the apparent saving will in fact leak out in the form of higher pay or bonuses."
The proposals come in the face of continuing criticisms that public sector pensions remain significantly higher than those in the private sector.
The Public and Commercial Services Union has received the proposals as a formal offer and welcomed the fact that they will protect existing staff and provide a whole career scheme for new entrants based on an accrual rate of 2.3%.