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UK civil service scheme in career average revamp

UK - Civil service pension proposals announced yesterday by the UK government will benefit civil servants whose salaries rise more slowly than average and those who leave before they retire.

The plans, which will come into force in July, will close the civil service final-salary scheme to new recruits in a bid to make the scheme cost-neutral. Under the career average revalued earnings scheme (CARES), new recruits will retire at 65 on 2.3% pension of average salary for each year of service. CARES will provide lower pensions than the current ‘premium' scheme for civil servants with faster-than-average salary increases.

A Cabinet Office spokeswoman played down the significance of the announcement, pointing out that the government was merely implementing an agreement formed last October.

However, Watson Wyatt senior consultant Stephen Yeo described the new scheme as "truly radical" and "more likely to stand the test of time" than final-salary schemes because it provided equality between scheme members with different rates of salary increase.

Yet Yeo also suggested that employers would end up paying for cuts in pension benefits in higher pay and bonuses. "The next generation of CEOs will be on a lower pension. Something's got to give," he said.

Yeo dismissed suggestions that the civil service pension compromise could spread to other sectors. "With that generosity of accrual? Not likely. Outside of a few executive schemes, it's unprecedented.

"Corporate pension funds are leaving their accrual rates the same - and they're not pretending to be cost-neutral. The big difference with the civil service fund is that it's intended to be roughly cost-neutral."

The government has confirmed that it will cap funding of its contribution to the fund at 20%. Employer contributions currently total 19.4%. "Employee contributions will have to go up," the Cabinet Office spokeswoman said. They currently stand at below 3%.

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