Civil service pensions – current reforms

The Principal Civil Service Pension Scheme (PCSPS) is the occupational pension scheme for civil servants. It is a defined benefit scheme, operating on a Pay-As-You-Go basis. The current scheme has three main sections: classic for entrants before 2002; premium for those who entered between 2002 and 30 July 2007 and nuvos for new entrants that date.

Nuvos was introduced in July 2007, following negotiations on reform. Compared to the already existing scheme, it has a higher normal pension age (65, compared to 60) and provides benefits based on career average rather than final salary. Another feature of the 2007-08 reforms was the introduction of a ‘cap and share’ mechanism, under which future increases in the cost of benefits (arising, for example, from rising longevity) would be shared between employee and employer, subject to a cap on employer contributions.

In June 2010, the Government established an Independent Public Service Pensions Commission, chaired by Lord Hutton of Furness, to look at “the long-term affordability of public sector pensions, while protecting accrued rights”. The Commission’s interim report, published in October 2010, recommended an increase in member contributions. Tiered increases in member contribution rates in the civil service scheme were implemented in April 2012 and 2013. Further increases are scheduled for April 2014.

Recommendations of the Commission’s final report, published in March 2011, included replacing existing schemes with new ones, with pension entitlement based on career average earnings rather than final salary and linking the normal pension age to the State Pension age. The Government accepted Lord Hutton’s recommendations as a basis for consultation. In December 2011, it said heads of agreement had been established with most unions in the civil service, NHS, teachers and local government schemes. In March 2012, the Government published its Final Proposed Agreement. The Public Service Pensions Act 2013 created the framework for the new public service pension schemes to be introduced in 2015.

This note looks at the reforms to civil service pensions being introduced by the current Government. The development of the scheme is discussed in SN 3224 – Civil service pensions – developments to 2010.