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Examples

Worked examples

The new scheme will provide benefits that are calculated on a basis that is very different to the way Classic and Premium pensions are worked out.

It is difficult to assess the value of the pension you will earn simply from a high level description of the main features such as type of scheme, pension age, accrual rate and other technical elements. Perhaps the best way to judge the scheme you are being asked to vote on is to compare the expected level of pension to the expected level of pension from your current scheme.

The examples provided below are intended to help you do just that. They show relative levels of benefit (new scheme benefits as a proportion of current scheme benefits) for members of different sections of the scheme with different combinations of age and length of service and at different retirement ages (from current pension age to State Pension Age).

These figures rely heavily on underlying assumptions about factors such as earnings growth and even what State Pension Age will be.

We have assumed a long-term trend for real earnings growth of 2.25% in excess of inflation (CPI). This is to be consistent with projections underpinning the actuarial valuation of the scheme and other official estimates. While this may seem very high in the context of current pay restraint, it is an assumption for the long-term. If a lower real earnings growth assumption was used, the value of the Government's proposed scheme would improve relative to existing final salary benefits.

We have also assumed that State Pension Age is as currently legislated for and not allowed for announcements that have not yet been legislated for. In particular we assume the increase to 67 does not occur until 2036.

The examples show the ratio of all benefits under the new proposals (including protection pension built up under existing schemes) compared to the pension that would have been accrued if the current scheme had remained in operation (ie figures below 100% show the Government's proposals result in lower benefits and figures above 100% show they result in higher benefits).

Results

It is possible to draw some general conclusions from the examples provided here.

  • There is no impact on benefits for members within 10 years of pension age on 1 April 2012 because they continue in their existing scheme.
  • For Classic, Classic Plus and Premium members who transfer to the new scheme, the results show that benefits under the Government's proposals are almost always lower at age 60 than under the existing schemes. However, for most members, benefits are higher under the Government's proposals by State Pension Age. Therefore there is usually an age between 60 and State Pension Age where members earn a pension under the new Proposals that matches their current benefits. Member will generally not have to work until State Pension Age to be able to retire on the same income as currently possible under existing schemes.
  • For Classic, Classic Plus and Premium members the impact of the proposals is generally more detrimental the younger members are. This is due to a number of factors:
    • they tend to have less protected service
    • their State Pension Age can be higher
    • the impact of the change to career average is more pronounced the longer there is to retirement.
  • For Nuvos members there are two main differences between the Government's proposals and their existing scheme:
    • pension age is higher
    • the accrual rate is better. The impact of the higher pension age is more significant than the improvement in the accrual rate. Generally speaking Nuvos members will accrue benefits that are about 4% to 12% lower under the Government's proposals.

Classic

Classic member, 55 years old, 30 years’ service on 1 April 2012

Age of retirement

60

61

62

63

64

65

66

Ratio of benefits

100%

100%

100%

100%

100%

100%

100%

Note: A Classic member who is 55 years old on 1 April 2012 is within 10 years of pension age and therefore stays in the Classic scheme. Benefits are unaffected by the proposals.

Classic member, 45 years old, 15 years service on 1 April 2012

Age of retirement

60

61

62

63

64

65

66

67

Ratio of benefits 97.2% 98.8% 100.4% 102.6% 105.1% 107.5% 110.6% 114.1%

Note: These figures show that a Classic member in these circumstances would have a lower pension under the proposals if they retired at 60 but would have a broadly equivalent pension by 62 and if they retired later would actually have a higher pension.

Classic member, 40 years old, 20 years service on 1 April 2012

Age of retirement

60

61

62

63

64

65

66

67

Ratio of benefits

94.2%

95.8%

97.3%

99.3%

101.6%

103.9%

109.6%

115.8%

Note: These figures show that a Classic member who is 40 years old and has 20 years’ service has to wait until 64 to earn a better pension from the new proposals than their existing scheme. However outcomes are significantly better at older ages because there is no limit of service of 45 years as in Classic.

Classic member, 35 years old, 10 years service on 1 April 2012

Age of retirement

60

61

62

63

64

65

66

67

Ratio of benefits

87.6%

89.8%

92.0%

94.7%

97.7%

100.5%

104.1%

108.0%

Note: These figures show that a Classic member in these circumstances has to wait until 65 to get a better pension under the new proposals than under their existing arrangements.

Premium

Premium member, 55 years old, 30 years’ service on 1 April 2012

Age of retirement

60

61

62

63

64

65

66

Ratio of benefits

100%

100%

100%

100%

100%

100%

100%

Note: A Premium member who is 55 years old on 1 April 2012 is within 10 years of pension age and therefore stays in the Premium scheme. Benefits are unaffected by the proposals.

Premium member, 45 years old, 5 years service on 1 April 2012

Age of retirement

60

61

62

63

64

65

66

67

Ratio of benefits

93.1%

94.7%

96.5%

98.7%

101.2%

103.6%

106.7%

110.1%

Note: These figures show that a Premium member in these circumstances would have a lower pension under the proposals if they retired at 60 but would have a broadly equivalent pension by 64 and if they retired later would actually have a higher pension.

 Premium member, 35 years old, 15 years service on 1 April 2012

Age of retirement

60

61

62

63

64

65

66

67

Ratio of benefits

88.4%

89.8%

91.1%

92.8%

94.8%

96.6%

101.2%

106.0%

Note: A Premium member who is 35 years old with 15 years’ service would have to wait until 66 to get a better pension under the new proposals. One of the reasons that pension is higher under the new proposals by age 66 is because there is no limit on the length of service.

Nuvos

Nuvos member, 55 years old, 4 years service on 1 April 2012

Age of retirement

65

66

Ratio of benefits

100%

100%

Note: A Nuvos member who is 55 years old on 1 April 2012 is within 10 years of pension age and therefore stays in the Nuvos scheme. Benefits are unaffected by the proposals.

Nuvos member, 40 years old, 4 years service on 1 April 2012

Age of retirement

65

66

67

Ratio of benefits

93.1%

93.4%

94.1%

Note: A Nuvos member who is 40 years old on 1 April 2012 will generally receive a pension that is about 6% to 7% less than if they stayed in their current scheme.

Nuvos member, 25 years old, 4 years service on 1 April 2012

Age of retirement

65

66

67

68

Ratio of benefits

88.8%

88.9%

89.5%

92.2%

Note: A Nuvos member who is 25 years old on 1 April 2012 will generally receive a pension that is about 10% to 12% less than if they stayed in their current scheme. The impact on younger members is more significant because State Pension Age is projected to be higher for this group. At 68 the impact is lower because there is no limit of 75% of earnings under the new proposals as there is in Nuvos.