Civil service employer pension contribution

Hel2164

Hi everyone,
I have a defined benefits pension with the civil service. I've noticed this month the employer pension contribution has gone from 27.1% up to 28.97%. 

I know that as a defined benefits pension, this percentage of money doesn't really come to me. 

However I'm wondering why the percentage would have gone up, and what the benefits are (for CSP - I'm fairly sure I don't get any benefits from this). For the last 4 years I've been in civil service the employer percentage has always been the same, for me this is a head scratcher. 

Anyone else know anything about it?

Emmia

Have you been promoted recently? Or tipped over one of the CS thresholds of pay?

hugheskevi

The Civil Service pension scheme has Valuations every 4 years. This is an actuarial assessment of the costs of the scheme against the notional assets.

Based on the latest 2020 Valuation which determines employer contribution rate between 2024-2027, the 28.97% employer contribution rate consists of (as a % of pensionable earnings):

• 29.2% cost of newly accruing pension on average across the scheme, plus
• 5.9% adjustment for notional deficit in 2020 (notional as it is not a funded scheme so there cannot be a deficit, but there is a pretend pile of assets that actuaries pretend increases in line with the SCAPE discount rate set by HM Treasury and then compare this pile of notional assets to the liabilities of the scheme), less
• 0.8% due to a surplus arising between 2020-24 as member contributions were higher than the 5.6% target, less
• 5.6% member contributions

Which all adds up to 28.7%, and then there will be administration costs added in.

Various things will cause costs to fluctuate between Valuations, most notably changes in the SCAPE discount rate which HM Treasury sets based on long term expected GDP growth. Changes in longevity, age composition of the workforce (providing pension for older members is more expensive), marriage trends, tendency to commute for lump sum, and so on all have varying impacts.

The employer contribution is largely just money washing around the Exchequer - HM Treasury votes money to employers to run their Department, who then pay the employer contribution back into the Exchequer. There are a few non-Governmental employers for whom there is a real cost but that is a minority. But having an employer contribution means employers take account of the appropriate cost of hiring new members of staff in their decision making.

Cynics may argue that recent reductions to the discount rate are helpful ways for HM Treasury to increase headline Departmental funding which helps with statements about highest levels of funding ever, but then claw it back via higher employer contributions.

The employer contribution rate is irrelevant to members - back when alpha was introduced in 2015 the employer contribution rate was 21.1%. The scheme is unchanged but it is now 28.97%. The key drivers of that change are a lower discount rate driven by a sharply lower long-term assumed GDP growth, and the cost of 2015 Remedy to address the unlawful discrimination in the 2015 reforms. These increases in costs are offset by much lower pay growth than would have been assumed, helping particularly with the cost of final salary schemes and also longevity growth has pretty much stalled over the last 10-15 years.