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| Public sector pensions 'will be reduced by a third' under reforms | Public sector pensions 'will be reduced by a third' under reforms |
| (4 months later) | |
| Proposed changes to public sector workers' pension schemes will reduce the average value of the benefit by more than a third for four million people, according to a report by the Pensions Policy Institute (PPI). | Proposed changes to public sector workers' pension schemes will reduce the average value of the benefit by more than a third for four million people, according to a report by the Pensions Policy Institute (PPI). |
| However, some people at the bottom of the income scale will be better off under the reforms. | However, some people at the bottom of the income scale will be better off under the reforms. |
| The coalition plans to make several changes to public sector pension schemes to reduce the costs of running them. These include raising retirement ages in line with the state pension age and increasing the contributions made by employees. | The coalition plans to make several changes to public sector pension schemes to reduce the costs of running them. These include raising retirement ages in line with the state pension age and increasing the contributions made by employees. |
| It also intends to change the structure of final payouts so that instead of being based on a worker's final salary, pensions are based on average earnings over their career. | It also intends to change the structure of final payouts so that instead of being based on a worker's final salary, pensions are based on average earnings over their career. |
| The PPI's analysis of the effects of these reforms showed that across the four largest public sector schemes, those set up for the NHS, teachers and local government workers and the civil service scheme, the value of member benefits would fall from an average of 23% of their salary to 15%. | The PPI's analysis of the effects of these reforms showed that across the four largest public sector schemes, those set up for the NHS, teachers and local government workers and the civil service scheme, the value of member benefits would fall from an average of 23% of their salary to 15%. |
| Members of the NHS and teachers' schemes would see the value of their benefit fall from 23% to 14%, while those who were in the local government pension scheme would see it drop from 22% to 14%. | Members of the NHS and teachers' schemes would see the value of their benefit fall from 23% to 14%, while those who were in the local government pension scheme would see it drop from 22% to 14%. |
| The impact on members of the civil service scheme would be a fall in the value of the benefit from 27% to 17%. | The impact on members of the civil service scheme would be a fall in the value of the benefit from 27% to 17%. |
| However, close analysis of the NHS scheme showed that the reforms would have a positive impact on some scheme members' benefits. When the PPI compared the pensions of a 40-year-old high-flyer – defined as someone with a faster than average salary progression, and a low-flyer – someone with a slower than average progression, it found both would get pension benefits worth 15% of their salary after the changes, compared with 29% and 11% respectively before. | However, close analysis of the NHS scheme showed that the reforms would have a positive impact on some scheme members' benefits. When the PPI compared the pensions of a 40-year-old high-flyer – defined as someone with a faster than average salary progression, and a low-flyer – someone with a slower than average progression, it found both would get pension benefits worth 15% of their salary after the changes, compared with 29% and 11% respectively before. |
| "The reforms will therefore reduce the disparity in the pension benefits received between high-flyers and low-flyers," the report said. | "The reforms will therefore reduce the disparity in the pension benefits received between high-flyers and low-flyers," the report said. |
| The report noted that these schemes would still be more valuable than those typically offered by many private sector employers. | The report noted that these schemes would still be more valuable than those typically offered by many private sector employers. |
| "Even after the coalition's proposed reforms the benefit offered by all four of the largest public service pension schemes remains more valuable, on average, than the pension benefit offered by defined contribution (DC) schemes that are now most commonly offered to employees in the private sector, into which employers typically contribute around 7% of a DC scheme member's salary," it said. | "Even after the coalition's proposed reforms the benefit offered by all four of the largest public service pension schemes remains more valuable, on average, than the pension benefit offered by defined contribution (DC) schemes that are now most commonly offered to employees in the private sector, into which employers typically contribute around 7% of a DC scheme member's salary," it said. |
| Unlike the defined benefit (DB) schemes on offer in public sector, DC schemes do not offer a set payout and the ultimate pension income is based on the performance of the underlying fund. | Unlike the defined benefit (DB) schemes on offer in public sector, DC schemes do not offer a set payout and the ultimate pension income is based on the performance of the underlying fund. |
| However, for the fewer than 10% of private sector employees still offered DB schemes, provision will be more valuable than in the private sector, with some employees getting benefits worth 27% of their salary, the report said. | However, for the fewer than 10% of private sector employees still offered DB schemes, provision will be more valuable than in the private sector, with some employees getting benefits worth 27% of their salary, the report said. |
| The cost of providing pensions has been rising in recent years, with increased life expectancy and low gilt yields causing many private sector employers to move away DB schemes to DC pensions, where contributions tend to be lower. | The cost of providing pensions has been rising in recent years, with increased life expectancy and low gilt yields causing many private sector employers to move away DB schemes to DC pensions, where contributions tend to be lower. |
| In a bid to reduce expenditure, the government has already switched annual increases in pension payouts to public sector workers from the RPI measure of inflation to the typically lower CPI measure. | In a bid to reduce expenditure, the government has already switched annual increases in pension payouts to public sector workers from the RPI measure of inflation to the typically lower CPI measure. |
| The proposed changes are set to affect everyone who is more than 10 years from their scheme's pension age. | The proposed changes are set to affect everyone who is more than 10 years from their scheme's pension age. |
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