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2010 examples

2010 CSCS changes: examples

The following examples show how the proposed CSCS terms would work in practice.

The examples are based on Prospect's understanding of how the terms would apply. The information is provided to assist members deciding how to vote in the upcoming ballot; members should not make financial decisions on the basis of this information, members should obtain forecasts of benefits from their scheme administrator before deciding to accept any redundancy benefits offered.

1 - Paul, the standard terms

2 - Jackie, effect of salary underpin

3 - Sean, effect of cap

4 - Deirdre, part time

5 - Deirdre (2), part time capped

6 - Ken, over normal pension age

7 - Eileen, tapered under normal pension age

8 - David, partial retirement

9 - Stacey, early pension

10 - Stacey (2), early pension

11 - Stacey (3), early pension (Classic) 

12 - Patrick, re-employment

13 - Jane, transferred in service

14 - Hasmita, pre-87 reserved rights

Example 1 - Paul, the standard terms

Paul is 42 and works full-time. His earnings are £24,000 and he has 20 years’ service. If Paul is made redundant on voluntary terms he will receive: 

20 X (£24,000 / 12) = £40,000

(20 is the number of years’ service, £24,000 / 12 is the monthly rate of pay.)

He will also be entitled to 3 months’ notice.

Example 1 shows how the compensation terms will apply in the simplest case.

 

Example 2 - Jackie, effect of salary underpin

 

Jackie is 42 and works full-time. Her earnings are £18,000 and she has 20 years’ service. If Jackie is made redundant on voluntary terms she will receive:

20 X (£23,000 / 12) = £38,333

(£23,000 is used because this is the minimum earnings level for calculating redundancy benefits under the proposed terms.)

She will also be entitled to 3 months’ notice.

Example 2 shows how the lowest paid are protected by the salary underpin by using full-time equivalent earnings of at least £23,000 in the calculation.

Example 3 - Sean, effect of cap

Sean is 48 and works full-time. His earnings are £24,000 and he has 30 years’ service. If Sean is made redundant on voluntary terms he will receive:

21 X (£24,000 / 12) = £42,000

(21 months is used because this is the maximum service that can count towards redundancy benefits under the proposed voluntary terms.)

He will also be entitled to 3 months’ notice.

Example 3 shows how benefits are capped for those with long-service.

Example 4 - Deirdre, part time

Deirdre is 34 and switched to part-time working 5 years ago. She worked full-time for 10 years and 3 days per week for the last 5 years. Deirdre is paid £18,000 per annum (full-time equivalent earnings of £30,000). Her reckonable service is 13 years (10 years’ full-time plus 5 years working at 3 days per week). If Deirdre is made redundant on voluntary terms she will receive:

13 X (£30,000 / 12) = £32,500

(13 and £30,000 / 12 are the service and earnings used because these are the full-time equivalents.)

She will also be entitled to 3 months’ notice

Example 4 shows that part-time workers receive benefits based on full-time equivalent salary.

Example 5 - Deirdre (2) - part time capped

If all other circumstances were the same but Deirdre had worked for a further 15 years and was made redundant at age 49 with 10 years’ full-time and 20 years’ part-time service then the benefit varies in the following way. Deirdre’s pay is still £18,000 per annum (full-time equivalent earnings of £30,000). Her reckonable service is now 22 years (10 years’ full-time plus 20 years working at 3 days per week). If Deirdre is made redundant on voluntary terms she will receive:

21 X (£30,000 / 12) X 22 / 30 = £38,500

(The factor of 22 / 30 is applied because this is the proportion of actual service to service if always working full-time.) 

She will also be entitled to 3 months’ notice

Example 5 shows how benefits for part-time workers can be capped to ensure they are in line with benefits for full-time workers.

Example 6 - Ken, over normal pension age

Ken worked for 10 years before being made redundant at age 60. Ken worked full time and is paid £30,000 per annum. His reckonable service is 10 years. If Ken is made redundant on voluntary terms he will receive:

6 X (£30,000 / 12) = £15,000

(6 is used because this is the maximum service for someone over normal pension age. Note that normal pension age is simply the age that members can ordinarily draw their unreduced pension from – ie in non-redundancy situations. For Classic, Classic Plus and Premium members this is 60 and for Nuvos members it is 65.)

He will also be entitled to 3 months’ notice

Example 6 shows how benefits are restricted for those over pension age.

Example 7 - Eileen, tapered under normal pension age

Eileen worked for 20 years before being made redundant at age 59. Eileen worked full time and is paid £30,000 per annum. Her reckonable service is 20 years. If Eileen is made redundant on voluntary terms she will receive:

18 X (£30,000 / 12) = £45,000

(18 is used because this is the tapered maximum service for someone aged 59. The cap on service used is the lower of 21 or the number of months to normal pension age plus 6. Someone aged 59 in the Classic scheme has 12 months to normal pension age so the cap here is 12 + 6 or 18 months’ pay. If tapering had not applied then the benefit would have been based on 20 months’ pay and been £50,000.)

She will also be entitled to 3 months’ notice

Example 7 shows how benefits are tapered close to normal pension age (from 58 years and 9 months).

Example 8 - David - partial retirement

David worked for 10 years before taking partial retirement at age 60. Since taking partial retirement he has worked 3 days per week for the last 5 years. David is paid £18,000 per annum (full-time equivalent earnings of £30,000). His reckonable service is 13 years (10 years’ full-time plus 5 years working at 3 days per week). If David is made redundant on voluntary terms he will receive:

6 X (£30,000 / 12) X 10 / 13 = £11,538.46

(The factor 10 / 13 is applied because this is the proportion of actual service to service if always working full-time.)

He will also be entitled to 3 months’ notice

Example 8 shows the effect of partial retirement.

Example 9 - Stacey, early pension

Stacey is 56 and works full-time. Her earnings are £24,000 and she has 30 years’ service. If Stacey is made redundant on voluntary terms she can choose to take the standard lump sum or her accrued pension unreduced with any remaining lump sum after buying out the actuarial reduction on the pension taken as a compensation payment.

Stacey’s standard lump sum on voluntary terms is:

21 X (£24,000 / 12) = £42,000

Stacey is a member of Premium and can choose to take her pension of £12,000 per annum immediately unreduced. The cost of taking the pension unreduced immediately is estimated to be £36,000.

(The unreduced pension is calculated as final salary X reckonable service / 60 or £24,000 X 30 / 60. The scheme actuary calculates the cost of taking the pension unreduced.)

Therefore Stacey can choose between a lump sum of £42,000 and an immediate, unreduced pension and a lump sum of £6,000.

She will also be entitled to 3 months’ notice.

Example 9 shows how benefits are calculated for those over minimum pension age.

Example 10 - Stacey (2), early pension

If Stacey was 4 years younger the choices would be different. In this example Stacey is 52 and works full-time. Her earnings are £24,000 and she has 30 years’ service. If Stacey is made redundant on voluntary terms she can choose to take the standard lump sum or her accrued pension unreduced with any remaining lump sum after buying out the actuarial reduction on the pension taken as a compensation payment.

Stacey’s standard lump sum on voluntary terms is:

21 X (£24,000 / 12) = £42,000

Stacey is a member of Premium and can choose to take her pension of £12,000 per annum immediately unreduced. Now the cost of buying out the reduction on the pension is calculated to be £64,000.

(The cost of buying out the actuarial reduction is higher than the previous example because it is paid out earlier.)

Therefore Stacey can choose between a lump sum of £42,000 and an immediate, unreduced pension.

She will also be entitled to 3 months’ notice.

Example 10 shows that if the cost of an unreduced pension is more than the standard redundancy terms then the employer makes up the difference.

Example 11 - Stacey (3), early pension (Classic)

Examples 9 and 10 above refer to a member in the Premium section of the pension scheme. There is no automatic pension lump sum in the Premium section and the lack of a pension lump sum in these examples has led members in the Classic section of the pension scheme to ask whether the pension lump sum is used to buy out the actuarial reduction on the pension - it is not.

Considering the circumstances of example 9 again but this time assuming Stacey was a member of the Classic section of the pension scheme:

Stacey’s standard lump sum on voluntary terms is:

21 X (£24,000 / 12) = £42,000

Stacey is a member of Classic and can choose to take her pension of £9,000 per annum and her tax-free, pension lump sum of £27,000 immediately unreduced. The cost of taking the pension and pension lump sum unreduced immediately is estimated to be £36,000.

(The unreduced pension is calculated as final salary X reckonable service / 80 or £24,000 X 30 / 80. The unreduced pension lump sum is simply 3 times the pension. The scheme actuary calculates the cost of taking the pension unreduced.)

Therefore Stacey can choose between a compensation lump sum of £42,000 and deferring her pension or an immediate, unreduced pension of £9,000 pa and pension lump sum of £27,000 and a compensation lump sum of £6,000.

She will also be entitled to 3 months’ notice.

Example 11 shows how benefits are calculated for those over minimum pension age in the Classic section of the pension scheme.

Example 12 - Patrick, re-employment

Patrick is 40 and works full-time. His earnings are £24,000 and he has 10 years’ service. If Patrick is made redundant on voluntary terms he will receive:

10 X (£24,000 / 12) = £20,000

He will also be entitled to 3 months’ notice.

Patrick is re-employed in the civil service on earnings of £24,000 5 months later. Patrick will be required to repay £10,000 of his package.

(The repayment is calculated pro-rate. If Patrick had been re-employed 6 months and 1 day after redundancy then the package would not have been repayable.)

Example 12 shows how packages can be repayable.

Example 13 - Jane, transferred in service

Jane is 45 and works full-time. She joined the civil service 10 years ago and transferred 10 years' service from the local government pension scheme into the civil service pension scheme. Her earnings are £24,000. If Jane is made redundant on voluntary terms she will receive:

10 X (£24,000 / 12) = £20,000

She will also be entitled to 3 months’ notice.

(10 months is used in the calculation because only service in the civil service automatically counts towards redundancy benefits. A case can be made for counting transferred in pension service with other employers towards redundancy benefits but Cabinet Office approval is required for this.)

Example 13 shows how transferred in service is treated. 

Example 14 - Hasmita, pre-87 reserved rights

Hasmita is 48 and works full-time. Her earnings are £48,000 and she has 30 years’ service. Hasmita has reserved rights to pre-87 terms. If Hasmita is made redundant on voluntary terms she will receive:

21 X (£48,000 / 12) = £84,000

on standard terms.

Under reserved rights Hasmita would have been eligible for a package worth £312,000. If she leaves within the first year of the new terms she will receive 60% of this package or £187,200. Individual Cabinet Office approval would be needed for a payout on these terms.

She will also be entitled to 3 months’ notice.

Example 14 shows how tapering for pre-87 reserved rights works.