NHS Pension 2015 Scheme

hugheskevi

I work in banking and my employer only gives 10% non-contributory so 14% in public sector is too good, no wonder the countries finances are in a mess haha!!

2.4 percentage points of the 14.3% employer contribution rate in the NHS scheme arise from past service deficit contributions. Being unfunded schemes, these past service deficits are not real, only notional (there is a big pile of notional assets, against which liabilities are calculated - as there are no assets and the scheme is funded on a pay-as-you-go basis, the entire liabilities are a deficit).

So the value to individuals of the employer contribution is 11.9%. That is an average figure and in general, older members who stay with the employer for many years will do best from the scheme, and so it will be worth more to them than the average figure. Younger members who do not stay for a long period will do considerably worse.

Those contribution rates are based on the SCAPE (Superannuation Contributions Adjusted for Past Experience) discount rate used in the public sector, which was CPI+3% and HM Treasury has since decided this should be reduced to CPI+2.8% for the next round of valuations. Other things being equal (ie longevity, and all other scheme experience outcomes compared to previous expectations), that change in discount rate will increase past service deficit contributions and the cost of newly accruing pension, increasing the employer contribution rate. It will also increase the stated value of the overall scheme to members (ie that 14.3% figure will increase, although nothing real has happened, just HM Treasury have decided to amend the discount rate).

The value of a pension is hugely dependent on discount rates, and the 'correct' discount rate can be argued about forever - arguably there is no single correct measure, and the most appropriate rate to use depends on the purpose for the calculation. Discount rates could commonly be based on:

• gilt yields (buy-out)
• high quality corporate bond yields (FRS 17/IAS 19 accounting measure)
• expected overall return from a scheme's investments (technical provisions)
• based on the value of the PPF-level of benefits using a gilt measure (section 179)
• a SCAPE-basis.

Which all means that saying anyone's DB pension is worth x% is pretty meaningless without a lot of prior understanding about exactly what the figure means and how it should be interpreted.