MSE News: MPs highlight pensions confusion

hugheskevi

So it's useful to try to be sure that this change is presented accurately, with everyone able to see both individual and overall effects, including effects on national spending and inter-generational money transfers.

Absolutely agree. But sadly this is rarely the case when changes are presented.

An interesting case of intergenerational effects is the new Civil Service Pension scheme, which of all the public service pension schemes decided to increase the accrual rate at the expense of the revaluation rate to the maximum extent possible.

Trading a higher accrual rate for a lower revaluation rate benefits older workers at the expense of younger workers.

To illustrate the impact, take two workers aged 22 and 65 earning £25,000 per year (note that in 2015, 65 year old olds would have transitional protection, so the example illustrates the situation once transitional protection has ended, around 2022).

Both accrue pension of £580 per year payable from State Pension age, revalued and indexed by CPI.

The current scheme, Nuvos, is very similar to the post 2015 scheme. Therefore, using the calculator for Added Pension in Nuvos gives a good estimate of the value of the benefits (although note that Nuvos has a Normal Pension age of 65 rather than State Pension age - that means the calculator will overestimate both member's pension value slightly, with the over-estimate greater for the younger member who will have a higher SPA).

That shows the pension accrued by the 65 year old is worth £11,075 or 44% of salary, whilst the pension accrued by the 22 year old is worth 3,414 or 14% of salary. (using date of births of 27/12/1990 and 27/12/1947)

Member contributions will be 5.45% for both (Source here). Netting that off the figures above give employer contribution rates of 39% for the 65 year old and 8% for the 22 year old.

So in remuneration terms, the 65 year old receives 28% more for the sole reason they are older. I don't see any justification for this huge difference.