Frequently Asked Questions

The Government is working to make public service pensions fairer and more sustainable over the long term. Lord Hutton, in his independent review of public service pensions, concluded that “current scheme designs are not sufficiently robust to ensure the sustainability of public service pensions”, and that change is needed to “make public service pension schemes simpler and more transparent, and fairer to those on low and moderate earnings”.

Final salary schemes mean that ‘high fliers’ receive almost twice as much pension for every £100 of their contributions than people on ‘flat’ careers. The Government does not consider it right that lower paid employees should subsidise the pension entitlement of more highly paid staff. The Government is therefore proposing a “career average” scheme, where every year of your salary will count towards your pension, rather than just the last few years.

With better healthcare and improved lifestyles, many people can expect to spend as much as 40% of their adult life in retirement. People are also living longer – the average 60 year old is living ten years longer now than they did in the 70s.

This means public service pensions are costing more – £32bn in 2008-09, an increase of a third over the last decade which is more than we spend on police, prisons and the courts.

Lord Hutton considered that there needs to be a fairer balance between what employees contribute to their own pensions and what other taxpayers pay. If not, taxpayers will be paying for pensions they cannot possibly hope to receive themselves for generations to come.

The current final salary arrangements of most pension schemes also give more benefit, in relative terms, to those on higher salaries and those with better career progression. Schemes for the future should ensure that the pension that members get out is a fairer reflection of what they have put in across their entire working career.

A firefighter entering the service at age 20 or 30, with a full career as a firefighter, should get as generous a pension under the new scheme as they would under the current scheme that is open to new members. Higher earners are likely to get a lower pension than they do under current arrangements, but they will now receive a pension that is more proportionate to the contributions that they have made.

Under the Heads of Agreement proposals, a new firefighter who enters the service in 2015 at age 20, progresses to competent within 3 years and continues to earn a salary of £28,200 is likely to receive a pension of around £18,900 (or 67% of their final salary) after 40 years’ pensionable service. The same firefighter entering at age 30 is likely to receive a pension of around £14,100 (or 50% of their final salary) after 30 years pensionable service.

A very ‘high flyer’ who enters the service in 2015 at age 20 and progresses to Chief Fire Officer, is likely to receive a pension of around £45,200 after 40 years service (or 35% of their final salary of £130,000).

A number of case study examples showing illustrative pension benefits can be found here.

There are many good reasons to remain a member of a public service pension scheme, for instance:

• A public service pension is still a very effective way to save for your retirement.

• A new scheme will still provide a guaranteed level of pension – calculated as a fraction of your salary, not an unknown amount based on investment returns.
  

• You receive tax relief on your pension contributions and you also pay a lower rate of national insurance contribution if you are a member of a contracted out public service pension scheme.
  

• Your pension scheme provides valuable benefits for you and your family such as ill-health pensions and payments after your death.

Before making final decisions about opting out, members are encouraged to seek their own independent financial advice, based on their own personal situation.

Career average schemes provide a more equitable outcome than final salary schemes, where high flyers receive far more than the rest of the workforce in terms of the level of their pension benefits relative to their contributions received. Final salary schemes, such as the Firefighters’ Pension Scheme 1992 and New Firefighters’ Pension Scheme 2006, provide better benefits to members with high levels of salary progression, effectively subsidised by lower benefits to members with ‘flat’ careers. Members with incomes that do not substantially increase towards the end of a member’s career tend to get better benefits from a career average scheme than from a final salary scheme with the same overall average cost.

In a final salary scheme, your pension is typically worked out as a fraction of your final salary for each year of service. The ‘final salary’ used is generally the highest paid level of your last few years. For instance,

• If you are in the Firefighters’ Pension Scheme 1992, you receive a pension calculated as ((1/60th x the number of years up to 20) + (2/60 x the number of years served between 20 and 30 years)) x final pensionable pay.
  

• If you are in the New Firefighters’ Pension Scheme 2006, you receive a pension calculated as 1/60th x final pensionable pay x years (up to a maximum of 45 years).

The accrual rate is the amount of pension you build up each year towards your pension. It is not the only element that determines the amount of pension you receive on retirement, but it is a major factor.

It is expressed as a proportion of your pensionable pay and allows you to work out the value of your pension when it is paid out. In the proposed new firefighters’ pension scheme from 2015, the Government is proposing a provisional accrual rate of 1/58.7th (equivalent to around 1.70%), with a revaluation rate, or ‘inflator’, for active members of ‘earnings’.

For example:

If you earn £28,000, one year’s membership of the new pension scheme will entitle you to:

• 1/58.7th x £28,000 = £477 of annual pension

This amount will be increased each year by the rate of average weekly earnings increases and would be payable every year from when you retire.

Your total pension from the new scheme is calculated by adding up the individual pension entitlements you earn from each year of membership in the new scheme

As a comparison, the New Firefighters’ Pension Scheme 2006 has an accrual rate of 1/60th (or 1.67%) but it is based on final salary arrangements.

The accrual rate might not initially appear to be as generous as some of the other schemes which have reached Heads of Agreement, however, this is not an accurate reflection of the value of the benefits that have been secured for this scheme. Other schemes have agreed a higher accrual rate but a lower revaluation. All public service schemes are different, as are their workforces.

The approach being taken here ensures that a firefighter should get at least as generous a pension under the new scheme as they would under the current 2006 scheme that is open to new members.

The Normal Pension Age in the 2015 scheme is age 60, in line with the current Normal Pension Age in the New Firefighters’ Pension Scheme 2006. However, firefighters will be able to start to draw their pension upon retirement after reaching minimum pension age (55) with a reduction. Firefighters will continue to have a lower Normal Pension Age than other non-uniformed public servants, for which the proposal is to link retirement to the State Pension Age.

• The first part will reflect their service in their current scheme up to 2015 and be based on their final salary at the point that they actually retire or, in the case of a deferred pension, when the member leaves the scheme. Members will be able to retire and take this pension from their current scheme’s Normal Pension Age (55 in the 1992 scheme and 60 in the 2006 scheme) or, in the case of the 1992 scheme, from age 50 with 25 or more years of service. The 25 years of service will include combined pensionable service earned in both the 1992 and 2015 schemes.
  

• The second part will reflect pension earned from 2015 in the new scheme (or later if the member benefits from tapered protection) and will be payable in full from that scheme’s Normal Pension Age of 60. Members will still have a choice about when to retire, as this pension can be taken from the scheme’s minimum pension age of 55 but with a reduction.

Any pension earned in the new scheme will be payable in full from the age of 60. However, if members wish to retire and take their pension earlier, they can do so with a reduction. The reduction is to recognise that the pension is in payment earlier and therefore is to be paid for longer.

• If the member wishes to retire and take their pension from age 55 and has a State Pension Age of 67, they will have their pension reduced from between 48% and 60% (i.e. a 12 year reduction on the basis of between a 4% to 5% actuarial reduction per annum).
  

• However, if the same member wishes to retire and take their pension from age 57 under the enhanced arrangements, they will have their pension reduced from their Normal Pension Age of 60. Their reduction in pension is likely to be in the order of 12% to 15% (i.e. a 3 year reduction on the basis of between a 4% to 5% actuarial reduction per annum).

The Government set out its objective that those members who, on 1 April 2012, have 10 years or less to their current Normal Pension Age will see no change to when they can retire, nor any reduction in the amount of pension they receive at their Normal Pension Age. Members who qualify for this protection will remain in their current scheme until they retire.

What happens depends on which scheme you are in.

As the 1992 scheme is a closed scheme, if you opt out, you will not be able to opt back into that scheme. You will, instead, become a deferred pensioner and your 1992 scheme pension will be paid at age 60. As you cannot opt back in, you will lose any access to the final salary link for the service you have accrued under the scheme, any prospective double accrual enhancement and the ability to take your pension from age 50 with 25 years pensionable service. You will, however, be eligible to join the 2006 scheme up until 31 March 2015, or the new 2015 scheme from 1 April 2015.

This will be fully protected and you will be entitled to retire and take it at your current scheme’s Normal Pension Age. In addition, there are elements of the Firefighters’ Pension Scheme that apply to some members which warrant particular further consideration, given that the scheme has double accrual arrangements, early access to an unreduced pension before Normal Pension Age, and an actuarially assessed commutation factor.

For these members, the Government has agreed to meet:

• members’ expectation to double accrual for service accrued under the 1992 scheme, so that a members’ full continuous pensionable service upon retirement will be used to calculate an averaged accrual rate up to a maximum accrual rate of 1/45ths (which is what a members’ accrual rate would be on a uniform basis if they achieved their full 30 years’ service).

• members’ expectation to be able to access their 1992 scheme benefits, when they retire, from age 50 with 25 or more years pensionable service. Pensionable service for the purpose of calculating access to the pension will include any continuous pensionable service accrued under both the 1992 scheme and the 2015 scheme
  

• members’ expectation to an actuarially assessed commutation factor for benefits accrued under the 1992 scheme, based on the current commutation arrangements.

To recognise members’ expectation to double accrual on the service already earned, the Government has agreed to meet that expectation, and apply a multiplier to the 1992 pension scheme service that the member has already earned. This is as follows:

The Heads of Agreement provides for an employee contribution rate of 13.2% on average. The structure of employee contribution rates from 2015 is not yet known as it will depend on the outcome of the review of the 2012-13 increases, although new recruits are likely to be provided with a lower contribution rate for a limited period.

The Government is committed to reviewing the full impact of the proposed 2012-13 contribution changes, including the effect of membership opt-outs, before taking final decisions on how future increases will be delivered in 2013-14 and 2014-15. The outcome of this review will be considered when determining the contribution arrangements in the new scheme.

The structure of the employee contribution rate has yet to be finalised but may be structured so that lower paid staff pay lower contributions.

No. With better healthcare and improved lifestyles many people can expect to spend as much as 40% of their adult life in retirement and the average 60 year old is living ten years longer now than they did in the 1970s. This means public service pensions are costing more and this cost has mainly been met by the employer.