The basic structure of the Scheme will keep the familiar final salary set up - in other words, your benefits will still be based on pay and membership.
60ths replace 80ths
The benefits you build up before 1 April 2008 will be worked out as they are now, in other words:
Pension = PAY X MEMBERSHIP ÷ 80
Plus a lump sum of 3 times that pension.
But the benefits you build up from 1 April 2008 will consist of a bigger pension but no automatic lump sum, worked out as follows:
Pension = PAY X MEMBERSHIP ÷ 60
You will then be able to give up some pension and create a lump sum if you wish, at the rate of £1 of pension for each £12 of lump sum (this is the same conversion rate as we have now, and the same limits will apply to the size of lump sum).
In case you don’t do 60ths and 80ths, you might be wondering whether this leaves you better or worse off. In fact a ‘60ths scheme’ gives you more pension for each year of membership, even after swapping some pension for a lump sum. Later in the year, we’ll put more information on this website and in our new Members’ Guide, with worked examples.
Lump sum life cover will go up to three times your pay and pensions for partners will be introduced for the first time - both same sex and opposite sex. Nearer to April 2008, we will tell you who qualifies for this, and what paperwork you need to fill in. Please note: this is NOT the same as any lump sum life cover nomination you may have already made.
The Scheme’s normal retirement age will stay at 65, and all members who joined before October 2006 will keep any ‘85 test protections’. (Exactly how this will be achieved remains to be seen). As now, members will be able to choose to retire from 60, but possibly with reductions.
The right to draw benefits in cases of redundancy or efficiency will carry on, although the minimum age for this will go up to 55 - in March 2010 for current members, and from April 2008 for new members.
There will be a three tier ill health package, for members who are permanently unable to carry out their job:
- If someone is incapable of any type of work before age 65, their benefits will be based on the years they have built up so far, plus the years they have left to age 65.
- If someone is likely to be capable of carrying out some type of work before 65, their benefits will be based on the years they have built up so far, plus a quarter of the years they have left to age 65.
- Where someone is likely to be fit for some kind of work fairly quickly, we expect Regulations to allow their employer to pay them a temporary ill health benefit.
This will continue in the new Scheme - but with the chance to draw all or part of the benefits you have built up, whilst continuing to work in some reduced capacity - for example by a reduction in hours. This will only be possible if you are age 50+ (55 from March 2010) and your employer agrees.
The new Scheme will bring in different contribution rates for different pay bands - so many members’ contribution rates will change. Each year your band will be decided by your pay on April 1 (or your pay on joining if you started after this). By the way, we use your whole time equivalent pay to set your band if you are part time.
Depending on which band your annual rate of pay falls into, you then pay the percentage shown below of your actual pay in that year:
Band |
Contribution |
Up to £12,000 |
5.5% |
More than £12,000 up to £14,000 |
5.8% |
More than £14,000 up to £18,000 |
5.9% |
More than £18,000 up to £30,000 |
6.5% |
More than £30,000 up to £40,000 |
6.8% |
More than £40,000 up to £75,000 |
7.2% |
More than £75,000 |
7.5% |
Example 1: Bill works full time, and his pay on 1 April 2008 is £12,000. So from 1 April 2008, he will pay 5.5% of his actual pay.
Example 2: Mary works job share. Her actual pay on 1 April 2008 is £8,000, but her whole time equivalent pay is £16,000. The full time pay sets her contribution rate at 5.9% - so from April 2008, she will pay 5.9% of her actual part time pay.
If you currently pay a protected rate of 5%, any increase in contributions for you may be phased in gradually, but we don’t know the details yet.
Notes: The actual Regulations had slightly different bands and pay periods, but the DCLG has told us they intend to use the system shown here.
You will, as now, be able to boost your benefits by paying AVCs. But the option to buy extra membership will be dropped (although if have started to buy extra membership when the new Scheme comes in, you will be able to carry on).
A new topping up plan will come in, allowing you to buy extra annual pension, up to a £5000 maximum.
Pensions will go up in line with the Retail Prices Index, as now.
As now, there will be enhanced benefits for members drawing benefits after 65. Benefits must be drawn before the 75th birthday - even if the member works on.
And even after this round of changes, we can expect further changes - possibly in contributions - from 2011.
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