UK £58bn civil service scheme to go part-funded
UK – The Cabinet Office is to introduce a new funded component in its pensions scheme, Principal Civil Service Pension Scheme (PCSPS), following a four-year review, the first for 30 years, that was designed to modernise the scheme, which currently has liabilities of some £58bn (€92.3bn).
The review was undertaken in conjunction with the Government’s Actuary’s Department, the fund’s adviser and actuary, and the Treasury. The current scheme’s gross cost at the end of last year came to £2.9bn, of which employer contributions accounted for £1.2bn. Employee's contribute 1.5% of pay go the scheme.
The new arrangement, to be introduced in October, includes both defined benefit (DB), which will then close to new entrants, and a new funded defined contribution component.
Existing scheme members may remain in the DB scheme, switch completely to the DC scheme or opt for a combination of both, whereby contributions up until the end of September remain in the DB component but all contributions thereafter will go into the DC plan.
Traditionally, the scheme pays out its pensions then calculates the liabilities that the payments entail each year. Any difference between employer and employee contributions and the liabilities total is met by the taxpayer. But the new funded DC plan is set to change that.
Each “company” or civil service department within the DC scheme may retain its assets or pool them to be invested to make capital returns.
“How they choose to do this will be up to them so long as they generate the cash themselves to meet payments. The idea is to relieve the burden on the taxpayer and companies and departments operating within the civil service,” says a spokeswoman for the Cabinet Office.
New scheme members can either join the new DC plan or take out a stakeholder pension.
But, the spokeswoman says the changes aren’t just about money.
“The review wasn’t simply a question of making the fund more efficient and cost-effective but also a response to members needs, particularly with respect to partners and survivor benefits. ‘Modern thinking’ meant a total revamp was needed rather than just playing at the edges,” she says.
The Cabinet Office claims the costs of the changes will fall entirely on scheme members. “We are introducing the changes to be cost-neutral to employers and will not take any additional taxpayer money from the government to pay for them,” says the spokeswoman.
The PCSPS has some 516,000 active members, 254,000 deferred pensioners, 398,000 retired members and 126,000 surviving dependants pensioners.