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Select Committee on Public Administration Minutes of Evidence


Annex

Comparison of PCSPS and new defined benefit scheme

PCSPSFeature New defined benefit scheme
Civil servants and members of "schedule 1" bodies. Scheme to be closed to new members from 1 October 2002 MembershipNew entrants meeting PCSPS criteria and joining after 1 October 2002, also PCSPS members who decide, at the time of the options exercise (only), to join.
60 for most members.

55 for pre-Fresh Start prison officers.

Individual pension age for those with scheduled service
Pension age (age at which members have right to take accrued benefits without reduction) 60 for all memebrs.
1.5% of salary/wages (note: in some cases contributions are not paid on items which count for pension purposes) Contribution rate3.5% of all pensionable earnings.
All service which counts for pensionReckonable service Broadly as PCSPS, but service "transferred" from PCSPS will be reduced to take account of the better benefit structure.
Best year of pensionable pay in the last three Final pensionable payLast 12 months' pensionable earnings for most people; scheme will also consider earnings over last 10 tax years (+ price indexation) where this gives better result.
1/80th x pensionable pay x reckonable service. Pension reduced by "NI Modification" for those with pre-1980 service Pension on retirement1/60th x pensionable earnings x reckonable service. (Pension about 8% higher than under PCSPS if same lump sum is taken).
3/80th x pensionable pay x reckonable service Lump sum on retirementAchieved by commuting (giving up) pension on the basis of £1 of pension for £12 lump sum. Maximum lump sum as PCSPS.
Lump sum of 2 x pay—to specified nominee Death-in-serviceLump sum of 3 x pay—can be split between multiple nominees.
Spouse receives short-term pension at rate of member's full pay for three months (longer if there are dependent children)   No short-term pension.
Pension paid to surviving spouse on basis of half member's pension (based on service on which full contributions paid, plus enhancement). Pension ceases on remarriage or cohabitation   Pension paid to surviving spouse or financially interdependent partner (annual amount as in PCSPS, but paid for life). Pension subject to actuarial reduction if member is more than 12 years older than spouse/partner.
Lump sum reduced by 1.5/80th x enhancement x pensionable pay   No deduction from lump sum for enhanced service.
Children's pensions paid, at 50% of rate paid to spouse (maximum of two children). Higher rate if no spouse   Children's pensions paid, at 80% of rate paid to spouse/partner (maximum of two children). Higher rate if no spouse/partner.
If member dies within two years of retirement, spouse receives balance of two years' pension Death in retirementIf member dies within five years of retirement, spouse/partner receives balance of five years' pension.
Spouse receives short-term pension at rate of member's pension for three months (longer if there are dependent children)   No short-term pension.
Spouse then receives pension at half of member's rate. Pension ceases on remarriage or cohabitation   Spouse or financially interdependent partner receives pension of same annual amount as in PCSPS, but subject to actuarial reduction if member is more than 12 years older than spouse or partner. Pension is paid for life.
Childrens' pensions paid, at 50% of rate to spouse, to dependent children born before leaving service (maximum of two children). Higher rate if no spouse   Children's pensions paid, at 80% of rate paid to spouse/partner, to dependent children at date of death (maximum of two children). Higher rate if no spouse/partner.
More than two years qualifying service: choice of preserved pension or transfer value Benefits on leaving service before retirement More than two years qualifying service: choice of preserved pension or transfer value.
Less than two years qualifying service: choice of transfer value or reinstatement into State scheme plus refund of contributions if unmarried   Less than two years qualifying service: choice of transfer value or reinstatement into State scheme.
Pension to surviving spouse and dependent children as for death in retirement Death in defermentPension to surviving spouse or partner and children as for death in retirement.
Preserved lump sum pension benefit paid to member's nominee Lump sum of five x deferred pension paid to member's nominee (or nominees).
Early retirement from age 50 with actuarial reduction Effect of retiring early or late Early retirement from age 50 with actuarial reduction.
Service after 60 reckons to a maximum of 45 years in total   Service after 60 reckons. Pension actuarially-enhanced to take account of late payment (subject to further discussion with GAD).
Immediate payment of pension, with service enhanced for those with more than five years' service. Service doubled for those with five to 10 years service, and enhanced either by 62/3 years or to 20 years (if greater) for those with more than 10 years service. Pension lump sum reduced by 1.5/80th x enhancement x pensionable pay Ill-health retirementUpper tier benefits for those who cannot work again—immediate payment of pension on the basis of service being enhanced to pension age.

Lower tier benefits for those who cannot continue at their current level—immediate payment of accrued pension benefits. Minimum pension is based on 10 years' service.

No deductions from lump sum for service enhancement.
Service and pay calculated on full-time pro rata basis Part-timersAs PCSPS, but subject to Inland Revenue limits for part-timers.
Added years purchase by lump sum (first year of service) or periodic contributions. (Permanent staff only) Topping-up benefitsAdded years purchase by periodic contribution (all members).
Money purchase AVCs/and, from April 2001, concurrent stakeholder membership for those earning less than £30,000pa   Money purchase AVCs/concurrent stakeholder membership for those earning less than £30,000pa.
Refund of part contributions possible if unmarried on leaving the scheme Contribution refundsNone.
Contracted-out of SERPSInteraction with State scheme Contracted-out of SERPS.
Lump sum compensation for those under 50 or with short service. Those over 50 have pensionable service enhanced and receive immediate pension lump sum (and possibly some compensation lump sum). Annual compensation payment paid until pension comes into payment at pension age. Compensation on loss of job As current provisions for those under 50.

Over 50s to receive benefits of equivalent value to current provisions, but recognising that pension lump sum will not come into payment in advance of pension. In practice this will mean larger compensation lump sums on departure, and the effect of service enhancement being capitalised into a further lump sum paid at pension age.
Scheme may not conform entirely with Inland Revenue limits (particularly in relation to historical provisions) Tax statusPension benefits subject to Inland Revenue limits. Main impact is that pension cannot exceed 2/3 x pensionable pay.


 
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Prepared 29 June 2001