The governments public sector pension reforms will reduce the average value of a pension by more than a third, according to analysis published by the Pensions Policy Institute today.
In The implications of the coalition government’s public service pension reforms the think-tank detailed the effect the proposed reforms will have on the NHS, local government, teachers and civil service pension schemes. Together, these account for around 85% of public sector pension scheme members.
Under the plans, the value of a pension will be linked to a worker's career-average salary and not their final wage, member contributions will be increased and the normal pension age will be linked to the state pension age. The plans were passed into law last month as the Public Service Pensions Act 2013.
In its report, the PPI states that the reforms will reduce the average pension's value from 23% of a person's salary to 15%. The impact will be greatest for members of the civil service scheme, where the value of a pension will fall from 27% of the average salary before the reforms to just 17%.
The PPI noted, however, that public sector defined benefit schemes would still remain significantly more valuable to workers than the defined contribution offerings which were generally the only choice available to private sector workers.
Niki Cleal, PPI director, said: 'Even after the coalition's proposed reforms, the benefit offered by all four of the largest public service pension schemes remains more valuable, on average, than the pension benefit offered by defined contribution schemes that are now most commonly offered to employees in the private sector.'
Chris Curry, PPI research director, added: 'The impact of the government's reforms on members of the public service pension schemes will vary for scheme members with different characteristics.
'High-flyers with fast salary progression may see a larger reduction in the value of their public service pension under the government's proposed reforms than scheme members with more modest salary progression.'
The changes will reduce the cost to the government of providing unfunded public service pensions by around a quarter, the PPI found. While under the current system net government expenditure on the schemes is expected be total around 1.1% of gross domestic product by 2065, under the new system, it will amount to around 0.8%.