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Last Updated: Wednesday, 10 January 2007, 11:18 GMT
Civil service pension reforms due
Civil servants in Horse Guards Parade, 1973
The old pension scheme for civil servants will fade away
Final details of a new pension scheme for civil servants, which will start in July, are being unveiled by the government this week.

New joiners will retire at 65 rather than 60 and will receive a pension based on their average career earnings rather than final salary.

Current civil servants will see no changes to their pension arrangements.

The new scheme has been agreed with civil service trade unions after two years of negotiations.

Strike threat

The government's original plan nearly led to a national strike in 2005 by staff in Whitehall departments and government agencies.

That plan would have involved making about 500,000 members of the existing civil service pension scheme work until 65 for a full pension, rather than just 60.

There will now be a ballot of civil service trade union members on the new proposals in the coming months.

But a spokesman for the PCS union said they welcomed them.

"They provide a positive basis on which we can move forward," he said.

The new scheme

Only new staff recruited from July this year will be affected.

The principal features of their scheme will be

  • Staff contributions of 3.5% of salary.
  • A retirement age of 65.
  • A pension calculated on average career salary.
  • Faster build up of pensions - at a rate of 2.3% (1/43rd) of salary a year.
  • Continued inflation protection for pensions in payment.

The changes to the civil service scheme are part of government-inspired changes across many public service pension schemes, such as those for local government workers, NHS staff, teachers and firefighters.

The government's main aim has been to ensure that the cost of these schemes do not rise any further as employees continue to live longer.

Future changes

The schemes for local government and teachers are funded out of investments, but the others are paid for directly out of national taxes and council tax.

Such a scheme provides equality between members with different salary progression and between those who leave service and those who stay
Stephen Yeo, Watson Wyatt

The government wants to cap overall employer contributions to the civil service scheme at a maximum of 20%, just slightly more than the current average contribution rate of 19.4%.

As the new scheme will be cheaper to finance, the employer's contribution rate should decline steadily to 18.1% of the civil service salary bill as its membership builds up.

If costs rise in the future the government says it will seek to share the higher financial burden with staff, which could mean higher contributions from them or a slower build up of pensions.

But no further change along these lines is envisaged before 2012, and any reforms would be subject to further negotiations.

Stephen Yeo, of the actuarial firm Watson Wyatt, said the new scheme would provide significantly better pensions for many civil servants, in return for working longer.

"Such a scheme provides equality between members with different salary progression and between those who leave service and those who stay," he said.

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