On 9 January 2007 the Government published “radical” proposals for the reform of civil service pensions, which seek reduce the financial burden on tax payers. The proposed changes will only apply to new entrants from July 2007 onwards. The principal features of the new scheme will be:

  • staff contributions of 3.5 per cent of salary;
  • a retirement age of 65;
  • a pension calculated on career average salary;
  • faster accrual of pensions - at a rate of 2.3 per cent (1/43rd) of salary a year; and
  • continued inflation protection for pensions in payment.

In comparison the current “premium” civil service scheme provides, from age 60, an index-linked pension at 1/60th of final salary for each year of service.

The Government has indicated that it wishes to cap taxpayer liability if increases in longevity exceed predictions. This would be achieved by introducing an absolute cap of 20 per cent on employer contributions, just slightly in excess of the current average contribution rate of 19.4 per cent.

If costs rise in the future the Government states it intends to share the higher financial burden with staff, which could mean higher employee contributions or slower accrual of benefits.