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Public sector bodies launch consultations into changes to pension schemes


Each of the public service pension schemes has now begun a consultation on their proposals for member contribution increases from April 2012.

To meet the Spending Review commitment, public service pension schemes (including the NHS Pension Scheme) were asked to develop designs based on three key principles: low paid staff should be protected; increases should be progressive so the higher paid pay more and; any changes should minimise the chances of members opting out.

The Department of Health's consultation on the NHS Pension Scheme will cover increased employee contributions for 2012/13, approximately 40% of the 3.2% necessary to meet the Spending Review commitments.

The Government's plans to reform public service pensions, to ensure they remain sustainable for the future, have progressed further with the launch of a consultation on the increasing employee contrinutions on the Principal Civil Service Pensions Scheme (PCSPS) for 2012/13.

This follows the announcement on 19 July by the chief secretary to the Treasury that the Government would start formal consultations on increasing public service pension contributions for the next financial year. This is the first step on a longer journey of public service pension reform, following the recommendations of Lord Hutton's Independent Public Service Pensions Commission.

Minister for the Cabinet Office, Francis Maude said: "We have committed to public servants continuing to have pension arrangements that are among the very best available in the work place. I want to stress to all civil servants that our proposals for pension reform will 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 and the pension you have already earned will be protected.

"I am today launching a consultation on proposals to increase pension contributions for 2012-13 and as part of this process we will be engaging with the civil service trade unions to discuss these proposals."

The key proposals in the consultation published today are additional contributions are to take effect from April 2012. The proposed contribution increases would be on a tiered basis, meaning that three-quarters of Civil Service scheme members will see either no change at all or a contribution increase from April 2012 of less than 1.3% of pay (the average amount).

The preferred approach would mean that those earning under £15,000 (full-time rate) will see no increase in contributions. And that those earning up to £21,000 (full-time rate) will not see contributions increase by more than 0.6% in 2012-13.

The proposals mean that no civil servant should see contributions increase by more than 2.4% in 2012-13.

The consultation will close on 30 September

The Department for Education has also launched a consultation on proposed changes to the contribution rate for employees in the Teachers' Pension Scheme.

The plans form part of the Government's response to Lord Hutton's proposals to ensure all public pension schemes are fair, affordable and sustainable for current and future generations of public sector workers.

The consultation document published today sets out proposals for increased employee contributions to the Teachers' 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.

The Department for Education is proposing to go further than the Government's intentions to reflect the structure of its workforce and is consulting on extending the £21,000 threshold to £26,000, meaning that 117,000 teachers in the early stage of their careers would pay an increase of no more than 0.6% in 2012/13. Contributions increases would be greater for the highest paid, capped at 2.4%in 2012/13 or 6% by 2014/15.

Schools Minister Nick Gibb said: "We are determined to provide a fair and sustainable pension for the teaching profession. Pensions are an important part of a teacher's remuneration package and ministers are clear that a defined pension scheme will be maintained along with the pensions they have already earned so none of the rights people have accrued will be affected. And the Teachers' Pension Scheme will remain one of the very best available in the public sector.

"However, people are living longer and this makes pensions more expensive. Lord Hutton made it clear that there needs to be a fairer balance between what employees and taxpayers contribute towards public service pensions. It is right that we ask public sector employees to pay more towards their pension to ensure they are affordable for future generations of teachers.

"But it's vital that new or lower paid teachers are protected from the increases. That's why we are proposing to go beyond the commitment of capping the increase for those earning less than £21,000 and extending that cap up to £26,000. This will mean 117,000 teachers seeing an increase of just 0.6% next April, and a teacher earning £25,000 will pay around an additional £10 per month after tax relief."

The proposed increases in 2012/13 are approximately the same amount that were set out in the Pre-Budget report 2009 to be delivered under the 'cap and share' arrangements, which were agreed with unions as part of changes to the scheme in 2007.

The proposal to increase pension contributions comes as part of a wider package of reform designed to deal with increased costs of people living longer, while ensuring public service pensions remain among the very best available.

It follows a report by former Work and Pensions Secretary 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.

Increases for 2013-14 and 2014-15 and the longer term reform of the teachers' scheme will be the subject of further discussions between the Department and trade unions, which will feed into the central discussions on public service pensions reform taking place between TUC and the Chief Secretary to the Treasury.