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As you may have seen from earlier newsflashes and our newsletter Pension Power, we’ve been waiting for a further decision on the future of the 85 test, and this has now come through.
On Friday 2nd December, the Minister for Local Government announced that the 85 test will be removed from 1 October 2006. This means:
 Members joining on or after 1 October 2006 will find all their benefits reduced if they choose to draw them before 65.
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Existing members who would have passed the 85 test will find the benefits they build up from 1 October 2006 reduced if they choose to draw them before 65. Protection will be offered to some older staff who are closer to retirement and who would have passed the 85 test. Details will follow.
The Government, with employers’ backing, previously tried to remove the 85 test last April. But the move proved so unpopular with staff and unions that the ‘old rules’ were restored in August while talks continued.
The Government says the 85 test doesn’t comply with European age discrimination legislation. It is also unfair to women who are more likely to take career breaks, therefore building up less years, and standing less chance of passing the 85 test. The examples illustrate these two points ...
This newsflash is based on a brief statement from the Government, who have since released draft regulations. A period will now follow to allow time for further feedback from interested parties. The actual
Regulations must be passed by Parliament before they can come into force.
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Beryl and Brenda both do identical jobs and earn £20,000 a year before deductions. Beryl will have have 22 years’ membership by the time she reaches 63, whereas Brenda will build up exactly the same number of years a little younger, at age 61.
Let’s say they both choose to retire after their 22 years... Since they earn the same, and have the same number of years, you would think their benefits would be identical. But because Brenda’s age + years come to less than 85, she fails the 85 test, and her benefits are reduced...
Beryl’s benefits: |
Brenda’s benefits: |
Pension: £5,500
Lump sum: £16,500
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Pension: £5,500 less 7% = £5,115
Lump sum: £16,500 less 2%= £16,170 |
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John and Jane both do identical jobs and earn £20,000 a year before deductions. John will have have 30 years’ membership by the time he reaches 60, whereas Jane will only have 15, as she started work when her family were grown up.
Let’s say they both choose to retire at 60... Since they earn the same, but John has twice as many years, you would think his benefits would be twice Jane’s. But because Jane’s age + years come to less than 85, she fails the 85 test, and her benefits are reduced...
John’s benefits: |
Jane’s benefits: |
Pension: £7,500
Lump sum: £22,500
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Pension: £3,750 less 27% = £2,737
Lump sum: £11,250 less 11% = £10,012 |
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