Consultation on fair reforms to the firefighters' pension scheme to help reduce burden on taxpayer.
The government has today (18 December 2013) launched a consultation on fair reforms to the firefighters’ pension scheme that will help reduce the half billion pound burden on taxpayer.
Under the proposed changes firefighters will continue to get 1 of the most generous pension schemes in the public sector with guaranteed levels of benefit and inflation proofing. A firefighter would need to double their level of contributions to get the same pension from a private sector provider.
Public service pensions are getting more expensive as people live longer. An independent review found that the firefighters’ pension scheme 1992 is the most expensive public service pension scheme and recommended changes to all public service pension schemes to lift the burden on future taxpayers.
For every £1 a firefighter pays into the scheme, taxpayers now pay in an extra £5 to meet scheme costs. Last year that cost taxpayers £557 million. The proposed reforms are intended to get a fair deal for the taxpayer and for firefighters.
After the proposed reforms have been implemented a firefighter who earns £29,000 and retires after a full career aged 60, will expect to get a £19,000 a year pension rising to £26,000 with a state pension.
With the protections put in place a greater proportion of firefighters are protected from changes than any other large public service workforce and less than a quarter of firefighters will see any change in their retirement age in 2015.
Firefighters are the only workforce where new recruits will not see any increase in their retirement age.
The proposals in this technical consultation include:
- scheme membership and eligibility
- when a person’s pension starts under the new scheme, including pensionable pay
- member’s entitlement to a full or partial retirement pension in the event of partial or early retirement
- ill health and in-service death benefits, including lump sum pensions payable to surviving partners
- how to purchase extra pension
Fire Minister Brandon Lewis said:
Firefighters do an incredible job and I am committed to ensuring that that they get fairly rewarded. We have been working with representatives from the fire service for 3 years to develop reforms that strike the right balance between a fair deal for the taxpayer and a fair deal for firefighters. The proposals on the table meet those aims and give firefighters one of the most generous pensions in the public sector.
We have made a wealth of information available to firefighters in order that they can judge exactly how these changes will affect them. They will find that in 2015 there are guaranteed levels of benefit, pension inflation proofing, less than a quarter of firefighters will see any change in their retirement age and many existing members will actually see their contribution rates fall.
A firefighter who earns £29,000 and retires after a full career aged 60, will get a £19,000 a year pension rising to £26,000 with a state pension. Contributions rates would need to double to get that sort of pension deal from a private sector provider.
The review by Lord Hutton considered that all public servants, including firefighters, will need to pay more for their pension to ensure a fairer balance between what the taxpayer pays and what employees contribute. The government accepted those findings.
The Public Service Pensions Act 2013 received Royal Assent on 25 April 2013 and makes general provision for reforms to public service pension schemes. The Act sets out that defined benefits schemes must be a career averaged revalued earnings scheme (or a defined benefits scheme of such other description as specified by HM Treasury) and that the normal pension age for the uniformed services (armed forces, police and firefighters) must be aged 60.
Currently for every £1 paid into the firefighters’ pension schemes by the employee, the taxpayer contributes £5. The taxpayer funding is through 2 routes: the contributions paid by individual fire and rescue authorities into the pension schemes and through the government “top-up” grant. The firefighters’ pension schemes are unfunded schemes which means that current scheme income (through employee and employer contributions) pays for current scheme expenditure, with the difference between the 2 topped up by a government grant. The grant for the firefighters’ pension scheme in 2012 to 2013 alone was £370 million (up from £260 million in 2008 to 2009), with a further £187 million paid by employers. Firefighters contributed £106 million during this period.
Following discussions, a proposed final agreement on the scheme design for the firefighters’ pension scheme 2015 in England was published on 23 May 2012. The government made clear that this set out their final position on the main elements of the scheme design, which unions were then to take to their executives. See the full version of the proposed final agreement.
A written statement (PDF,16KB) on today’s consultation has been laid before Parliament.
The main parameters for forming the basis of the statutory consultation on member benefits as set out below:
a. a pension scheme based on career average revalued earnings
b. an accrual rate of 1/58.7th of pensionable earnings each year
c. there will be no cap on how much pension can be accrued
d. a revaluation rate of active members’ benefits in line with average weekly earnings
e. pensions in payment and deferred benefits to increase in line with the Prices Index (currently the Consumer Prices Index)
f. Flexible retirement from the scheme’s minimum pension age of 55 built around the scheme’s normal pension age of 60, with members being able to take their 2015 scheme benefits as follows:
for all active members who are aged 57 or more at retirement, 2015 scheme benefits taken before normal pension age will be actuarially reduced with reference to the 2015 scheme’s normal pension age, rather than the deferred pension age
all other members will have their 2015 scheme benefits actuarially reduced on a cost neutral basis from the scheme’s deferred pension age
g. authority initiated early retirement for members of the 2015 scheme from age 55 to be in accordance with the arrangements set out in Part 3, Rule 6 of the New Firefighters’ Pension Scheme 2006
h. late retirement factors for members retiring from active service to be actuarially neutral from the normal pension age
i. a deferred pension age equal to the individual’s state pension age
j. optional lump sum by commutation at a rate of £12 for every £1 per annum of pension foregone in accordance with HMRC limits and regulations
k. ill-health retirement benefits to be based on those contained in the New Firefighters’ Pension Scheme 2006
l. all other ancillary benefits to be based on those contained in the New Firefighters’ Pension Scheme 2006
m. members rejoining after a period of deferment of less than 5 years can link new service with previous service, as if they had always been an active member
n. members transferring between public service schemes would be treated as having continuous active service
There will be transitional protection in respect of:
- all accrued rights are protected and those past benefits will be linked to final salary when members leave the Firefighters’ Pension Scheme 2015
- all active members who, as of 1 April 2012, have 10 years or less to their current normal pension age will see no change in when they can retire, nor any decrease in the amount of pension they receive at the current normal pension age; this means members will remain in their existing schemes and not transfer to the firefighters’ pension scheme 2015
- there will be a further 4 years of tapered protection for scheme members; this means that members who are up to 14 years from their current normal pension age, as of 1 April 2012, will have limited protection so that on average for every month of age they are beyond 10 years of their normal pension age, they gain about 53 days of protection, before they transfer to the firefighters’ pension scheme 2015
The reformed firefighters pension scheme will come into force on 1 April 2015.
This consultation will close on 12 March 2014 and the department will hold further separate consultations on other aspects of the 2015 scheme design during 2014. The further consultations will cover the following areas: governance, valuations, employee and employer contribution rates, and the employer cost cap.
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