The 2014 UK budget proposed some drastic changes to the pension world and the various schemes therein. The many changes proposed are set to take effect from April 2015. The Cabinet has launched a consultation document outlining the changes to pension legislation. Public sector pensions (Civil Service schemes) will be affected. The following is a list of public sector schemes:
▪ Armed forces
▪ Teachers
▪ Civil service
▪ Police
▪ NHS
▪ Local Government
There are two main types of work-based pension schemes in the UK, described very basically as follows:
▪ Defined Contribution in which a pot of money is built up over the course of the employment via contributions to be used to fund the person’s pension when they retire.
▪ Defined Benefit in which the income available to the individual is dictated by their level of salary and the number of years they have been a member of the scheme. Public sector pension schemes are defined benefit schemes.
Many of the changes to be introduced improve the flexibility of defined contribution schemes. The government anticipates that this will result in members of defined benefit schemes wanting to transfer over to defined contribution schemes to access these new benefits. This could represent a significant cost for UK taxpayers. As a consequence, the government will introduce legislation to remove the option to transfer out of public sector schemes, except in very limited circumstances.
The government has also said that public sector schemes are unaffordable in their current form and so further changes to how they operate are expected. The reason they are unaffordable is largely because people are living longer and so receive their pensions for longer.
Changes to the structure of the public sector pension schemes introduced in the Public Service Pensions Act will save an estimated £430 billion over the next 50 years. This saving is achieved by imposing restrictions such as increasing the schemes’ normal retirement age.
Members of public sector schemes have a very limited window to review their pension and see whether they would benefit from a transfer to a defined contribution scheme. Only five months remain for public sector workers to review their pension and then make their own informed decision. Beyond that, this opportunity will no longer be available and members will have to accept any changes (detrimental or otherwise) made to their pension in the future.
If you are a member or an ex-member of a public sector pension scheme and would like more information or would like to review your pension options then get in touch for a free no obligation pension review on
289 355 685.
Blacktower Financial Management (International) Limited
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