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Last Updated: Friday, 18 February 2005, 10:24 GMT
Q&A: Civil service pension changes
Civil service workers protesting

Unions are up in arms over proposals to radically alter civil service pensions, changing a scheme spoken of as among the best in the world. BBC News takes a closer look at what the changes mean.

What is the government doing?

The government wants to raise the retirement age from 60 to 65, from 2006 for new civil servants and from April 2013 for existing workers.

Its other big idea is to replace the existing final salary pension schemes with one where pensions are based a worker's "career average" performance not his final salary.

Under a career average system - often referred to as a hybrid scheme - each year's salary will count towards the final pension. With a final salary scheme, the best year of the last few years of service, is what matters.

It is also proposing to raise the contribution rate paid for new entrants to 3.5% of pensionable earnings from 6 April 2006 - most civil servants pay 1.5%.

On top of that, the government wants to increase the age at which workers can take early retirement from 50 to 55, and reduce the benefits for people who retire early.

I'm an existing civil servant. Will it affect me?

The government is phasing in the changes for existing civil servants.

Existing civil servants born on or before 1 April 1953 will continue to be able to leave service at age 60 and draw their pension as now
Existing civil servants who continue to work beyond 1 April 2013 will end up with two separate amounts of pension: one based on final salary and the other based on career average

It is proposing to move current staff to the new arrangements from 1 April 2013.

Until then, workers will pay into their existing pensions and can retire at 60.

Pension payments made after 1 April 2013 by current civil servants will be put into the new "hybrid" scheme and they will have to work until they are 65 to obtain their full pension.

How many people are affected?

There are about 600,000 active members of the civil service pension schemes.

The workers affected include those who work for central government departments, based in Whitehall, along with agencies like the Drivers and Vehicles Licensing Agency (DVLA).

Teachers, local government workers and NHS workers are not directly affected by these proposals, although there are other changes coming in for many government pension schemes.

Some workers, such as those in physically-demanding occupations, older workers and high earners, may be excluded from some of the changes.

Increasing the retirement age is likely to be particularly unpopular with mid-career civil servants who have 20 years' experience under their belts and have long expected to retire at 60.

They will be working alongside Members of Parliament and government ministers who receive a generous final salary pension, based on 1/40th of their final salary.

Unions have already expressed alarm at the proposals as they argue that the generous pension scheme makes up for the fact that civil servants get lower pay than that offered in the private sector.

Will I pay more - and get less?

It is likely that civil servants will end up paying more for their pensions - and may get less.

Actuaries Lane Clark and Peacock say that some people will see their pension halved.

The costs of contributing to the scheme are also likely to rise in the future, as the government has said that contribution rates should not be fixed.

Why is the government axing the scheme?

The government insists it is not a "cost-cutting measure", though the scheme is widely viewed as being too expensive to maintain.

Indeed, it says that the pension rate will be even better than the existing accrual rate of 1/60th or 1.67% of pay, although it has not said what it will be.

The government says that career average schemes are much more in tune with modern working practices, as it will give more flexibility to workers.

Final salary schemes can be over-generous to people who receive a substantial pay rise close to the end of their career
Complex to administer as employees' working patterns have become more flexible
They benefit members with long service at the expense of those with shorter service
Emphasis on the last few years can put additional pressure on people at a time when they should be "winding down"

It says that the existing system can provide "perverse incentives for staff to stay on when it is no longer in the best interests for themselves or management".

Is an average career scheme all that bad?

They can work in the favour of some employees.

Over the past few years, many final salary schemes have been closed and replaced with money purchase pensions.

Money purchase plans provide an individual retirement fund into which the employer and employee contribute - but the employee shoulders all the investment risk.

Average salary schemes are a halfway house between the two: the risks are shared between the employer and employee, although ultimately the scheme is likely to be less generous than a final salary scheme.

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