134/02
17 December 2002
PUBLIC SERVICE PENSION AGE
As part of proposed reforms to reflect improved longevity, modern working patterns, and practice in most private sector pension schemes, future civil servants, teachers and NHS staff may need to work until 65 rather than 60 to get their full pension. The proposed changes would be made by 2006. Present public service employees’ pension rights already earned will be fully protected and existing staff will still be able to retire at 60 years if they wish.
The proposals, set out in the Green Paper “Simplicity, Security And Choice: Working And Saving For Retirement”, would raise the pension age in the civil service and other public service pension schemes from 60 to 65.
It is likely that individual schemes will wish to introduce the new pension age as part of a package of measures for their members, which may offer benefit improvements and can take advantage of new flexibilities and simplification proposed in the Green Paper.
Schemes will consult on how and when the higher pension age and any associated enhancement to benefits could be extended to existing employees, while protecting rights already built up before the change and ensuring that all existing members will be able to receive a pension from the age they currently expect.
The reviews of the public service schemes will be the subject of consultation with unions and staff representatives and are likely to take a few years to complete, but once introduced the higher pension ages would apply to all new entrants.
In many areas there is a demand from employees to work for longer, and it is appropriate to encourage and reward that accordingly. The change would help the financial sustainability of public service schemes.
NOTES FOR EDITORS
1. The proposal in the Green Paper relates to the normal pension age, which is the earliest age at which someone may receive the pension they have built up without special conditions or a reduction for taking it early. This age may differ from an employer’s normal retirement age, which is the age at which someone would normally be required to retire from that employment.
2. One recommendation of the report ‘Winning the Generation Game: Improving Opportunities for People Aged 50-65 in Work and Community Activity’ (Cabinet Office Performance and Innovation Unit, April 2000) was that public sector employers should review retirement ages and examine the case for allowing those who want to work on to 65 to do so. About 75 per cent of civil servants already have the option to retire at 65 and the numbers able to serve beyond age 60 are expected to increase.
3. Under the EU Employment Directive that comes into force by December 2006, compulsory retirement ages are likely to be unlawful unless employers can show they are objectively justified. However, final salary pension schemes are likely to continue to define an age at which someone may receive a normal pension.
4. The public service pension schemes cover over 4 million employees, of whom over 2 million are in schemes with a pension age of 60. The main public service schemes are those for the civil service, teachers, NHS, local government, police, fire and armed forces. All are final salary schemes (though new entrants to the civil service have the option of their employer contributing to a stakeholder pension instead).
5. The main effect would be for new entrants to the civil service, teachers and NHS pension schemes, where the present normal pension age is 60. The local government pension age is already 65 but rules allowing those with sufficient service to access their pension earlier would be phased out. There will continue to be some occupations, such as the armed forces, fire service and police, where the need for a recognised physical capacity justifies the award of normal pension at a lower age, but for individuals who leave before they reach such an age their pension would also be deferred to age 65.
6. The Local Government Pension Schemes is the only major public service scheme that is funded. Benefits from other schemes are part of government current expenditure, though in most cases the employer is charged a superannuation contribution which reflects the eventual cost of pensions of their current staff. Gross annual expenditure on public service pensions is £22 billion.
7. Some 64% of members in private sector final salary schemes have a normal pension age of 65. (Source : NAPF Survey 2001)
8. The text of the Green Paper is available at www.dwp.gov.uk.
9. This press release and other Treasury-related material are available on the internet at www.hm-treasury.gov.uk.
10. Media enquiries should be addressed to Charles Keseru at the Treasury press office on 020 7270 5188