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kevin
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The Work and Pensions Committee has invited the Minister for Pensions, Steve Webb MP, to give oral evidence on the Government’s pensions reforms on Wednesday 9 March 2011 at 9.30 am.

 

In advance of the evidence session, short submissions (no more than 2,000 words) are invited from interested organisations and individuals on the following issues, or on other current pensions matters:

  • The proposed accelerated increase in the State Pension Age (and particularly the impact of the change on women)
  • The impact of the change to using the Consumer Price Index to uprate workplace pensions
  • The plans for auto-enrolment into workplace pension schemes and the establishment of the National Employment Savings Trust (NEST).

How to submit your written evidence (PDF)

Watch the meeting

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Uprating Private Sector Occupational Pensions (Revised Impact Assessment)

Steve Webb< (Minister of State (Pensions), Work and Pensions; Thornbury and Yate, Liberal Democrat)

Today, the Government will publish an updated version of their impact assessment for the move to the consumer prices index (CPI<) for uprating private sector occupational pensions. A further update is anticipated when the Government respond to the consultation on this issue.

On 8 July, Government announced the move to using the CPI as the basis for the statutory minimum uprating of occupational pensions. On 8 December, the Department published a consultation document on the impact of using the CPI for revaluation and indexation of private sector occupational pensions, and an initial impact assessment was published to accompany the consultation document.

Following publication, an error in the calculations has been identified. Additionally the Regulatory Policy Committee (RPC<) has reviewed the calculations underpinning the impact assessment. Acting on the feedback from the RPC, the Government have made a change to the method used to calculate the net present value (the value expressed in today's money) of the reductions to scheme liabilities. The version to be published later today takes account of these two changes.

The Government are currently undertaking research into private pension schemes rules and the likely reaction of employers to the decision to use the CPI which will extend our evidence base for calculating the impact on scheme liabilities. The outcome of this analysis will feature in the next edition of the impact assessment.

A copy of the revised impact assessment will be placed in the Libraries of both Houses, and is available on the Department's website at: http://www.dwp.gov.uk/docs/cpi-private-pensions-consultation-ia.pdf<

http://www.theyworkforyou.com/wms/?id=2011-02-11a.24WS.1<

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The Chancellor invited John Hutton to chair the independent Public Service Pensions Commission. The Commission undertook a fundamental structural review of public service pension provision.

Final report

Lord Hutton of Furness has published his final report on public service pension provision in which he set out his recommendations to the Government on pension arrangements that are sustainable and affordable in the long term, fair to both the public service workforce and the taxpayer and consistent with the fiscal challenges ahead, while protecting accrued rights.

The report is available in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website<. For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page<.

Interim report

Evidence

Terms of reference

http://www.hm-treasury.gov.uk/indreview_johnhutton_pensions.htm<

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kevin
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The Work and Pensions Committee has invited the Minister for Pensions, Steve Webb MP, to give oral evidence on the Government’s pensions reforms on Wednesday 9 March 2011 at 9.30 am.

 

In advance of the evidence session, short submissions (no more than 2,000 words) are invited from interested organisations and individuals on the following issues, or on other current pensions matters:

  • The proposed accelerated increase in the State Pension Age (and particularly the impact of the change on women)
  • The impact of the change to using the Consumer Price Index to uprate workplace pensions
  • The plans for auto-enrolment into workplace pension schemes and the establishment of the National Employment Savings Trust (NEST).

How to submit your written evidence (PDF)

Watch the meeting

<
 <

News<

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kevin
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kevin
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The Commons Public Accounts Committee publishes a report today which, on the basis of evidence from HM Treasury and the Department of Health, examines the cost of public service pensions and the impact of the 2007-08 changes.

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The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
 

"Government projections of the future cost of public service pensions suggest that the changes made in 2007-2008 will stabilise costs at around 1% of GDP, thereby bringing substantial savings to the taxpayer. This would be a significant achievement.

However, we are concerned that the Treasury has not tested the impact of the changes on some of the key assumptions underlying their cost projections.

We are also concerned that the Treasury has not set out clearly what level of spending it considers sustainable in the long term. Instead, officials appeared to define affordability on the basis of public perception.

The Treasury expects the majority of savings to come from cost sharing and capping, a reform designed to ensure that employees bear a greater share of future costs. However, implementation has been deferred because of the Treasury’s discount rate review, and remains on hold while the Government consults on the recommendations put forward by the Hutton Commission.

As soon as possible after the consultation, the Treasury needs to publish its timetable for implementing this mechanism or an alternative scheme, as well as the expected savings.

Employees currently lack the information they need to understand the value of their pensions and make rational decisions accordingly. The Treasury must work with employers and pension schemes to improve the quality of information provided to employees.

We are also concerned that the Treasury has not properly assessed how changes to public service pensions might lead to additional spending elsewhere, for example by increasing demand for means-tested benefits. Public service pensions policy must not be determined in isolation from other areas of public policy and spending."
 

Margaret Hodge was speaking as the Committee published its 38th Report of this Session which, on the basis of two reports from the Comptroller and Auditor General, examined the cost of public service pensions and the impact of the 2007-08 changes.

Background

In 2007-08, new pension schemes were introduced for civil servants, NHS staff and teachers. The changes were in response to Treasury requirements for savings in taxpayer costs to make public service pensions affordable.

Three main changes were made. First, the age at which a scheme member could draw a full pension was increased from 60 to 65 years for new members. Second, employee contributions were increased by 0.4% of pay for teachers and by up to 2.5% of pay for NHS staff. Third, a new cost sharing and capping mechanism was introduced to transfer, from employers to employees, extra costs that arise if pensioners live longer than previously expected. The Coalition Government announced additional changes in 2010, including indexing pensions to the Consumer Prices Index rather than the Retail Prices Index, which are expected to reduce costs further.

Projections

Government projections suggest that the 2007-08 changes are likely to reduce costs to taxpayers of the pension schemes by £67 billion over 50 years, with costs stabilising at around 1% of Gross Domestic Product (GDP) or 2% of public expenditure. This would be a significant achievement. We would, however, encourage the Treasury to publish a clear measure or benchmark of affordability which indicates the level of spending on public service pensions it considers sustainable. Officials appeared to define affordability on the basis of public perception rather than judgement on the cost in relation to either GDP or total public spending.

The committee's findings

The committee is concerned that the Treasury did not test the potential impact of changes in some of the key assumptions underpinning the long-term cost projections. These include assumptions about the rate of growth in GDP, the size of the public service workforce, and the wider impact of the 2007-08 changes on increased payments in means-tested benefits and reduced receipts from taxation and national insurance. In addition, the Treasury has not tested whether reducing the value of pensions would affect the public sector’s ability to recruit and retain high quality staff.

The committee heard concerns that the discount rate used to set pension contribution levels was too high. A lower discount rate leads to higher contributions from employees and employers, reducing the long-term cost of pension schemes to taxpayers. Following a Treasury review including a public consultation, the Government has now set a new, lower discount rate which was announced in the 2011 Budget. This has removed uncertainty about the appropriate level of the discount rate.

Three-fifths of the savings to the taxpayer were expected to come from the cost sharing and capping mechanism. Under this mechanism, employees would bear a greater share of costs, potentially paying 70% more for their pensions over the next 50 years if life expectancy continues to increase more than expected. However, implementation of the mechanism has been deferred, initially because of the Treasury's discount rate review. Implementation remains on hold while the Government decides how to respond to the Independent Public Service Pensions Commission (the Hutton Commission), which has recommended that cost sharing and capping be developed into a 'cost ceiling' that sets an upper limit on the amount the Government contributes to employees' pensions. An early decision to implement cost sharing and capping is important for providing certainty to both employees and employers.

Pensions form a substantial share of the total salary package received by public service employees. We are concerned that employees do not have a clear understanding of the value of their pensions because they are not provided with clear and intelligible information to enable them to make rational decisions. This may mean the benefits of public service employment are not fully appreciated by current and prospective employees, potentially diminishing the influence of pensions as a recruitment and retention tool.

Public service pensions policy is not joined up with planning in other areas of public policy and spending. Whilst this is not a new issue, we still found it concerning given the potential impact that pension changes could have on areas such as future demand for means-tested benefits. There is little evidence to judge whether wider pension policy measures are effective, including measures such as tax relief and other incentives to encourage people to save for their retirement.

Further changes to public service pensions are expected in the near future. In the 2011 Budget, the Government announced that it had accepted the Hutton Commission’s recommendations for long-term structural reform of public service pensions as the basis for consultation with public sector workers, unions and other interested parties. Following this consultation, it will set out proposals in autumn 2011. This provides the opportunity for the Government to develop a clear strategic direction for public service pensions. We look forward to the Government’s detailed proposals and, following their implementation, a period of much-needed stability and certainty for long-term public service pensions policy.

Further Information

http://www.parliament.uk/business/committees/committees-a-z/commons-sele...<

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anonymous (not verified)
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Summary: 

This is the government's response to the call for evidence to assist the review of the regulatory differences between occupational and workplace personal pension schemes

http://www.dwp.gov.uk/docs/personal-pensions-consultation-response.pdf<

anonymous (not verified)
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Proposals to address short service refunds, small pension pots and transfers will be put forward by the Government later this year to ensure that variations in scheme rules don’t result in people failing to save.

Regulatory differences of pension schemes, including the use of short service refunds rules have been scrutinised in a Call for Evidence.

Short service refunds mean that people who leave their job in less than two years get a default refund of their pension contributions. People who move jobs often could find themselves out of pocket – defeating the purpose of having a workplace pension in the first place.

Responding to the evidence, Minister for Pensions, Steve Webb said:

"Automatic enrolment at its core is about getting people to save for their retirement. With just over half of working people changing jobs within two years, the use of these refunds pose a significant threat to what we are doing."

Responses made clear the complexity of the issues, and that changes to short service refunds cannot be made without also considering how small pension pots and transfers should be treated after automatic enrolment.

Steve Webb added:

"We will announce a full set of proposals in the Autumn, outlining proposed changes to short service refunds, together with potential ways to manage the burden of small pension pots after automatic enrolment.

"In the meantime I would encourage employers not to make their decision about scheme type on the assumption that short service rules will continue to exist in their current form going forward."

Notes to Editors

http://www.dwp.gov.uk/newsroom/press-releases/2011/jun-2011/dwp071-11.shtml<

anonymous (not verified)
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The Evaluation Strategy provides a framework for evaluating the effects of the reforms. It sets out the broad policy context, the key benefits and costs to individuals, employers, industry and Government, the evaluation approach, reporting strategy, and the likely sources of information.

July 2011 18 pages 297x210mm

ISBN 978-1-908523-00-6

anonymous (not verified)
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The Government will start formal consultations on increasing public service pension contributions in 2012-13 by the end of this month, Chief Secretary to the Treasury Danny Alexander said today, as he set out plans for talks on reform to continue into the autumn.

The Government and the TUC have agreed that to further inform the discussions on Lord Hutton’s recommendations, initial discussions on reform should be opened at a scheme by scheme level. The central process will continue alongside this. These discussions are necessary to ensure a fuller understanding of the implications of reforms, before final conclusions are reached.

To meet the target of £1.2 billion savings set out in the Spending Review for 2012-13, schemes will shortly begin consultation on their proposals for member contribution increases from April 2012. These consultations will only relate to delivering these savings in the first year (40 per cent of the average 3.2 percentage point increase). They will begin by the end of July and be completed by the end of October, in order to ensure implementation from April 2012.

The Government remains committed to securing the full Spending Review savings of £2.3 billion in 2013-14 and £2.8 billion in 2014-15, requiring each scheme to find savings equivalent to a 3.2 percentage point increase in member contributions. Separate scheme specific discussions will make proposals by the end of October on how these savings are achieved.

The Government has made clear that lower earners should be protected from the impact of any contribution increases. Today the Government proposed that there should be no increase in member contributions for those earning under £15,000 and no more than a 1.5 percentage point increase in total (before tax relief) by 2014-15 for those earning up to £21,000. This means 750,000 people should pay no extra contributions and another 1 million should pay no more than 1.5 per cent extra. This amounts to a 0.6 percentage point increase in 2012-13 on a pro-rata basis.

The total increase will be capped at 6 percentage points (before tax relief) by 2014-15 for the highest earners. This amounts to a 2.4 percentage point cap (before tax relief) in 2012-13 on a pro-rata basis.

Lord Hutton’s recommendations will inform scheme level discussions and the Government will provide scheme specific cost ceilings (a total cap on the cost of a scheme). These will ensure that public service pensions remain affordable and sustainable by setting a limit on the contribution made by the Government and ultimately the taxpayer.

Cost ceilings will be based on Lord Hutton’s proposals but will go further and ensure that the pension individuals receive at normal pension age would be broadly as generous for low and middle income earners as it is now. Scheme talks will be asked to provide initial proposals for reformed schemes by the end of October 2011.

Cost ceilings alone cannot manage the risks that taxpayers are exposed to in defined benefit schemes. This is why Lord Hutton recommended that the normal pension age should be linked to the State Pension Age. The Government continues strongly to believe that this is the right approach to managing the rising and uncertain risks of longevity. Scheme talks will also consider their preferred approach to managing risks, especially longevity risk. However, since risks ultimately lie with the taxpayer any approach will need to be agreed with the Treasury.

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Chief Secretary to the Treasury, Danny Alexander, said:

“The Government and the TUC have held a series of constructive meetings to discuss public service pension reform and have now agreed that to further inform the discussions on Lord Hutton’s recommendations, there should be scheme level discussions alongside the central process already established.

“I can also confirm today that to deliver the first year’s savings of £1.2 billion through employee contribution increases, scheme-by-scheme consultations for the unfunded public service pension schemes will commence by the end of this month. The Government remains committed to securing the full Spending Review savings of £2.3 billion in 2013-14 and £2.8 billion in 2014-15.”

For Local Government, the Government recognises that the funded nature of the scheme puts it in a different position and will discuss whether there are alternative ways to deliver some or all of the savings in respect of contribution increases.

There will be a further meeting between the Government and the TUC to review progress at the end of September.
Notes for Editors
1. The Chief Secretary to the Treasury and TUC General Secretary Brendan Barber have today published an exchange of letters setting out further details. These are available on the Treasury website at: http://www.hm-treasury.gov.uk/d/letter_cst_to_tuc_180711.pdf< and on the TUC website.
2. The Chief Secretary’s Written Ministerial Statement can be found at: http://www.hm-treasury.gov.uk/d/wms_pensions_190711.pdf<
3. The proposed protection for lower earners set out above and the numbers of people who would benefit are on a Full Time Equivalent (FTE) basis.

http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=420468&...<

anonymous (not verified)
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Workplace pension reform: consultation on draft regulations and guidance

This consultation document seeks views on new draft regulations relating to the Government’s workplace pension reforms – the Automatic Enrolment (Miscellaneous Amendments) Regulations 2011 and the Automatic Enrolment (Miscellaneous Amendments) (No. 2) Regulations 2011.

Also included in the consultation are two draft Orders in Council, relating to offshore workers and compromise agreements respectively, and draft guidance for persons certifying pension schemes.

We also welcome your views on the Impact Assessment on the effect of the draft regulations.

<

This consultation is aimed at all

  • employers,
  • employer and employee representatives, and
  • all pensions industry professionals, including

    • occupational pension and workplace personal pension scheme administrators,
    • payroll administrators,
    • accountants,
    • actuaries, and
    • Independent Financial Advisers.

We also welcome comments from workers and the general public.

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The consultation

Guidance

Regulations

Impact assessment

How to respond to this consultation

Start date 19 July 2011

End date 11 October 2011

Please send your consultation responses (preferably by e-mail) to:

Adrian Mallen
Department for Work and Pensions
Room BP9102
Benton Park View

Newcastle upon Tyne
NE98 1YX

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Email: workplacepensionreform.consultation@dwp.gsi.gov.uk<

Please ensure your response reaches us by 11 October 2011.

http://www.dwp.gov.uk/consultations/2011/workplace-pension-reform-2011.s...<

anonymous (not verified)
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On 12 January 2011, the Pensions Bill 2011 was introduced in the House of Lords by the Minister for Welfare Reform, Lord Freud. On 27 April 2011 the Bill moved to the House of Commons, where it will be led by the Minister for Pensions, Steve Webb MP.

The Bill introduces key measures to:

  • implement workplace pension reform measures from the Making Automatic Enrolment Work Review;
  • bring forward the timetable for increasing the State Pension age to 66; and
  • allow contributions to be taken towards the cost of providing personal pension benefits to current judicial pensions scheme members.

The text of the Bill and Explanatory notes are available on the Parliament website.

We have published the supporting documents for the Bill. The Bill Summary of impacts and Information Pack were updated when the Bill progressed to the House of Commons.

Since the Bill progressed to the House of Commons, we have updated and re-published the impact assessment for the move to CPI. The previous version of this impact assessment forms Annex C of the Summary of impacts.

We will update the Summary of impacts, and Annex C, at the next stage of the Bill.

MPs' information pack

We have provided a MPs’ information pack containing a series of fact sheets and an annex for clarification on specific parts of the Bill. This pack is not intended to replace or supersede the Explanatory Notes to the Bill.

We have also provided a Keeling version of the Bill, which shows how the Bill amends existing legislation.

We previously provided a peers’ information pack for when the Bill was in the House of Lords.

Background to pensions reform

Information about the development of pensions reform up to 2010 can be found on the following pages:

http://www.dwp.gov.uk/policy/pensions-reform/<

anonymous (not verified)
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Consultation on increases to NHS pension scheme contributions launched

Health Secretary: “Proposals will protect the lowest paid”

The Department of Health today launched a consultation on proposed changes to the level of contributions made by NHS Pension Scheme members towards their pension.

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It follows plans set out in the Spending Review 2010 to secure £2.8bn savings per year by 2014/15 through increasing public service employee pension contributions by an average of 3.2%, phased in from April 2012.

The consultation document published today sets out proposals for increased employee contributions to the NHS Pension Scheme in 2012/13 only. This represents around 40% of the total contribution increases expected by 2014/15. Proposals for increasing rates in 2013/14 and 2014/15 and the wider Hutton agenda will be subject of further discussion with trade unions.

Under the proposals, the lowest earners would be protected. Those earning less than £15,000 on a Full Time Equivalent basis will pay nothing extra. Almost all newly qualified healthcare professionals would only pay 0.6% more towards their pensions in 2012/13. Contributions increases would be greater for the highest earners.

The proposed increases in 2012/13 are approximately the same amount that had already been agreed by the Unions under the ‘cap and share’ arrangements set out in the pre-budget report 2009.

Health Secretary Andrew Lansley said:

“What will not change is that the NHS pension will remain one of the very best available, providing a guaranteed pension level for all employees – something that very few private sector employers still offer. We will also completely protect the pensions people have already earned. None of the rights people have accrued will be affected.

"However, Lord Hutton made it absolutely clear that there needs to be a fairer balance between what employees and taxpayers contribute to public sector pensions. With people living longer and healthier lives, the status quo is untenable and unfair. It is entirely reasonable that people pay more to receive the benefit for longer.

“The proposals we are setting out today will protect the lowest paid in the NHS. Those earning less than £15,000 will pay nothing extra towards their pensions and a nurse earning £25,000 a year would pay £10 more a month in 2012/13. The top earners in the NHS would be expected to contribute much more. A consultant earning £130,000, for example, would contribute £152 more a month.”

Examples of how the proposed changes could affect individual members include:

As a healthcare assistant working full-time earning £15,000 a year,

  • You would pay no extra for your pension.
  • In 2012-13 you will continue to contribute 5% compared to the current employer contribution of 14%.
  • This means that for every £1 you contribute, the employer contributes £2.80. For your overall yearly contribution of £750, your employer pays £2,100.
  • Moreover, because your contributions are tax free your effective contribution rate is 4% which is equivalent to £600 per annum
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £188 per year and a tax free lump sum of £563 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension of £251 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

As a nurse working full-time earning £25,000,

  • In 2012-13 you will contribute 7.1%, compared to the current employer contribution of 14%.
  • This means that for every £1 you contribute, the employer contributes £1.97. For your overall yearly contribution of £1,775, your employer will pay £3,500.
  • But because contributions are tax free your effective contribution rate will be 5.7%, equivalent to £1,425 per annum. This represents an increased personal contribution in 2012/13 of £10 per month after tax relief.
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £313 per year and a tax free lump sum of £938 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £417 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

As a scientist working full-time earning £30,000,

  • In 2012-13 you will contribute 7.7%, compared to the current employer contribution of 14%.
  • This means that for every £1 you contribute, the employer contributes £1.82. For your overall yearly contribution of £2,310, your employer will pay £4,200.
  • But because your contributions are tax free your effective contribution rate will be 6.2%, equivalent to £1,860 per annum. This represents an increased contribution in 2012/13 of £25 per month after tax relief.
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £375 per year and a tax free lump sum of £1,125 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £500 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

As a manager working full-time earning £60,000,

  • In 2012-13 you will contribute 8.5%, compared to the current employer contribution of 14%
  • This means that for every £1 you contribute, the employer contributes £1.65. For your overall yearly contribution of £5,100, your employer will pay £8,400.
  • But because contributions are tax free your effective contribution rate will be 5.1%, equivalent to £3,060 per annum. This represents an increased personal contribution in 2012/13 of £60 per month after tax relief.
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £750 per year and a tax free lump sum of £2,250 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension for this you will earn pension of £1,000 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

 

As a consultant earning £130,000,

  • In 2012-13 you will contribute 10.9%, compared to the current employer contribution of 14%
  • This means that for every £1 you contribute, the employer contributes £1.28. For your overall yearly contribution of £14,170, your employer will pay £18,200.
  • But because contributions are tax free, your effective contribution rate will be 6.5%, equivalent to £8,450 per annum. This represents an increased personal contribution in 2012/13 of £152 per month after tax relief.
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension for this you will earn pension of £1,625 per year and a tax free lump sum of £4,875 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £2,167 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.
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Notes to editors


  1. The consultation document can be found on the Department of Health website:

http://www.dh.gov.uk/en/Consultations/Liveconsultations/DH_128710<

  1. The consultation is open until 21 October 2011. The proposed changes only affect employee contribution rates in 2012/13.
     
  2. Tables setting out the proposed contribution rates can be found in the attached document.
     
  3. The proposals set out today will deliver around £530m of savings from the NHS Pension Scheme in 2012/13

http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=420610&...<

anonymous (not verified)
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Government consultation on proposed pension contribution changes for civil servants, NHS workers and teachers

The Cabinet Office, Department for Education and the NHS will today publish consultations on pension contribution increases for civil servants, teachers and NHS staff for the financial year 2012/13.

The increases are broadly equivalent to those expected under the ‘cap and share’ arrangements agreed with Unions in the Pre Budget Report 2009.

The proposal to increase pension contributions comes as discussions continue on a package of reform, based on work by former Work and Pensions Secretary, Lord Hutton. They are designed to ensure that public service pensions remain among the very best available, while dealing with increased costs of people living longer.

The proposed increases set out today will deliver over £1 billion of the £1.2 billion savings in 2012/13, as set out in the Spending Review 2010. The proposals represent 40% of the average 3.2 percentage point increase in public service pension contributions which the Government announced it would phase in from next year.

Protections for the lowest paid mean that those earning less than £15,000 will see no increase and those earning between £15,000 and £21,000 will have their increase capped to 0.6 percentage points (before tax) in 2012/13. The maximum increase in 2012/13 will be 2.4 percentage points (before tax) in 2012/13.

The consultations published today apply to the Civil Service in England, Scotland and Wales; the NHS in England and Wales and teachers in England and Wales. It will affect approximately two and a half million public service workers.

Scheme specific talks will make proposals by the end of October 2011 on how savings of £2.3 billion in 2013/14 and £2.8 billion in 2014/15 are achieved.

The proposals follow a report by Lord Hutton which recommended ‘comprehensive reform’, including a move to career average, rather than final salary pensions and linking retirement age to State Pension Age.

Lord Hutton also said “there is clear rationale for increasing member contributions to ensure a fairer distribution of costs between taxpayers and members”.

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Chief Secretary to the Treasury, Danny Alexander said:

“Today, the Government will take the latest step towards setting public service pensions on a sustainable path. Departments will start consultations on the extra contributions nurses, teachers and civil servants will make to their pensions next year.

“Under the agreement that Unions reached with the Government in 2009, contributions increases next year were expected. But because these are difficult times for everyone – public sector workers included, we are ensuring that those with the broadest shoulders will bear the greatest burden. The lowest paid will be protected, and the highest paid will face the biggest increases.

“This is the start of a process, phased over the next three years, that will help set a fairer balance between what employees and the taxpayer contribute towards public sector pensions. We will continue to discuss with Unions how to achieve the required savings in the following two years as well as the longer term reforms proposed by Lord Hutton.”

Key facts:
• The proposals announced today will deliver around £1 billion of the £1.2 billion savings in 2012/13. Of these around £530 million comes from the NHS Pension Scheme, around £300 million from the Teachers’ Pension Scheme and around £180 million in the Civil Service Scheme.
• The Government is proposing that there should be no increase in member contributions for those earning under £15,000 and no more than a 1.5 percentage point increase in total (before tax relief) by 2014/15, for those earning up to £21,000.
• This means 750,000 people should pay no extra contributions and another 1 million should pay no more than 1.5 percentage points extra.
• The total increase will be capped at 6 percentage points (before tax relief) by 2014/15 for the highest earners.
• Expenditure on pensions was £32 billion in 2008-09, an increase of a third over the last decade. This is about two-thirds of the cost of the entire Basic State Pension.
• Costs have risen very significantly in recent decades – currently close to 2% of GDP – in 1980 it was below 1.2% and in 1970 it was around 0.9%.
• The Whole of Government accounts show public service pensions liabilities are over £1.1 trillion. Effectively, the entire education budget for more than twenty years.
• In the 1970s a 60 year old could expect to live for a further 18 years, today the equivalent figure is 28 years.
• When it started, members of the Teachers’ Pension Scheme put in the same as the taxpayer – 5% each. Today, current members pay 6.4%, with employers contributing more than double - 14.1%.
• NHS employee contributions vary from 5.5 to 8.5%, whereas the employer contributes 14%.
• Civil Service employees contribute between 1.5 and 3.5%, whereas the employer contributes 19%.
• 85% of public sector employees have employer sponsored pension provision, compared to just 35% in the private sector.
• Only 2.6 million people in the private sector are active members of a defined benefit pension scheme, with guaranteed benefits in retirement.
• The median pension paid to members of public service pension schemes is about £5,600 a year (2009/10). About 90% of pensioners receive less than £17,000 a year, and about 10% are on £1,000 a year or less.
• By comparison, the median private pension income across both the public and private sectors (sum of occupational and personal pension income), for a single pensioner, is about £3,900 a year (2009/10).

Notes for Editors

1. For general enquiries on public service pension reform please contact the HM Treasury press office on 020 7270 5238. For enquiries about specific implications of proposals made by pension schemes please contact the relevant Department’s press office:
• Civil Service (Cabinet Office): 020 7276 0393. The Civil Service consultation document can be found at : www.civilservice.gov.uk<.
• NHS (Department for Health): 020 7210 5221. The NHS consultation document can be found at: www.dh.gov.uk<.
• Teachers (Department for Education): 020 7925 6789. The Teachers’ consultation document can be found at: www.education.gov.uk<.

http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=420609&...<

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The Government today set out details of its offer to workers on public service pensions. This new offer will mean that while most workers will still have to work longer and pay more, the pension that most low and middle earners working a full career will receive pension benefits at least as good, if not better, than they get now.
The offer includes a more generous ‘accrual rate’ – the rate at which annual benefits are earned – increasing from the 1/65ths offered in October to 1/60ths. This is an eight per cent increase.
The Government also announced today its objective that anyone within ten years of their pension age on 1 April 2012 will be protected, meaning they will see no change in when they can retire nor any decrease in the pension they receive at their normal pension age. This will benefit over a million people.
Others very close to being ten years from retirement age may also see some additional protection, the details of which will be subject to further discussions.

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The reforms are due to come into force from 2015 onwards for the rest of the workforce.
Today’s proposals are conditional on agreement being reached in scheme by scheme talks.
As previously announced, proposed pensions contribution increases starting in April 2012 will still apply to those earning more than £15,000 a year.
The offer means that, unlike many in the private sector, public service workers will continue to have access to a guaranteed benefit in retirement, not subject to market fluctuations or fees.
For a public service worker to buy a similar pension on the private market they would typically need to contribute around one-third of their salary every year.

The Chief Secretary to the Treasury, Danny Alexander, said:

“From nurses to teachers, civil servants to road sweepers, public service workers provide a valuable service and deserve good pensions in retirement. But people are living longer, so public service pension reform is inevitable.
“We’ve listened to public service workers and come up with a deal that’s fair and affordable. The lowest paid and people ten years off retirement will be protected – and pensions will still be among the very best available.”
The Minister for the Cabinet Office, Francis Maude said:
“From the beginning we have been absolutely committed to engaging with the unions on making the necessary reforms to public service pensions. We have listened to the concerns of public service workers and responded. It is time now for the unions to respond in a responsible manner and remember that industrial action will cause unnecessary disruption to small businesses and working people up and down the country who themselves do not have access to such generous pensions schemes.

“Let's not forget that as well as the new protections set out today, these proposals represent a settlement for a generation – and a settlement that will still see public service workers getting a guaranteed benefit in retirement – something which has all but been eliminated elsewhere."
In July, the Government agreed a process with the unions for taking forward Lord Hutton’s proposals for long-term reform through scheme-specific talks. To provide the parameters for talks with trades unions, the Government set out initial cost ceilings at the beginning of October. These cost ceilings set out the combined employee and taxpayer contributions.

The Government is not proposing any further increase in the total employee scheme contribution rates in addition to the proposed 3.2 percentage points increase in contributions already announced.
Following these discussions, the Government has increased these cost ceilings, making its offer more generous. It is now for trades unions to come forward with detailed proposals within these ceilings by the end of the year.
Based on the new offer, some workers will actually receive larger pensions at retirement, though they will have to work longer and in most cases pay more to get them.

For example, at normal pension age, after a full career in the new scheme:
• a nurse with a salary at retirement of £34,200 would receive £22,800 of pension each year if these reforms were introduced – under the current NHS Pension Scheme 1995 arrangements, they would only get £17,300;
• a teacher with a salary at retirement of £37,800 would receive £25,200 each year under our proposals, rather than the £19,100 they would currently earn in the final salary Teachers’ Pension Scheme (pre-2007);
• a civil servant with a salary at retirement of £29,800 would receive a pension of £24,300 each year under our proposals – under their current Nuvos Pension Scheme arrangements, they would only receive £20,100 per year;
• a housing benefits officer with a salary on retirement of £21,500 would receive £17,500 each year under our proposals, rather than the £13,600 they would currently get in the Local Government Pension Scheme (1 April 2008);
• a hospital porter with a salary at retirement of £14,600 would receive pension benefits of £11,900 each year, as opposed to the £9,300 they would currently get in the NHS Pension Scheme (2008); and
• a senior civil servant with a salary at retirement of £100,000 would receive a pension of £37,000 each year under our proposals, rather than the £44,400 they would currently get in their Premium Pension Scheme arrangements.

Notes for Editors

1. Further details of the Government’s public service pensions offer can be found in “Public Service Pensions: good pensions that last”, published today, which can be found here: http://www.hm-treasury.gov.uk/tax_pensions_index.htm<.
2. The cost ceilings for each pension scheme are set out below:

To view the table(s)/chart(s) in this release, please follow the link below:

http://nds.coi.gov.uk/ImageLibrary/detail.aspx?MediaDetailsID=4649<

3. Employee contributions are based on weighted average member contribution rates as at 2010. Net cost ceilings will be revised based on projected membership data, should this have a material impact on the comparison of a scheme design with the Government’s preferred design.
4. The Principal Civil Service Pension Scheme is for England, Wales, Scotland and home civil servants in Northern Ireland.
5. Case studies on the effects on public service workers of a move to the Government’s preferred scheme design are set out below:

To view the table(s)/chart(s) in this release, please follow the link below:

http://nds.coi.gov.uk/ImageLibrary/detail.aspx?MediaDetailsID=4649<

6. The Government has also set out its objective that public servants who, as of 1 April 2012, have ten years or less to their pension age see no change in when they can retire nor any decrease in the amount of pension they receive at their current Normal Pension Age. Schemes and unions will discuss the fairest way of achieving this objective.
7. This announcement is not directly linked to the contribution increases set out in July which are subject to ongoing consultation.
8. Estimates of the level of contributions required from a private personal pension plan are calculated by multiplying pension benefits by market annuity rates.
9. Gross and net cost ceilings for the Local Government Pension Scheme are purely illustrative and based on the proposal to increase member contributions by 3.0 percentage points on average by 2014-15. However, the Government launched a consultation on 7 October 2011 into the level of member contribution increase, entitled “Consultation on proposed increases to employee contribution rates and change to scheme accrual rates, effective from 1 April 2012 in England and Wales”. If the outcome of the consultation is that member contribution increases are less than 3.0 percentage points, the cost ceilings will be amended appropriately.

http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=421851&...<

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