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Raising the pension age
The government has proposed new CARE schemes
should provide future service pensions from 2015 onwards.
It is proposed that the Normal Pension Age for
members should be the member’s State Pension Age. This means that
for most members the Normal Pension Age will rise to something
higher than age 65.
State Pension Age varies for people of
different pension ages as increases in it are being phased – so
Normal Pension Age will also vary according to members’ ages.
The timetable for ‘State Pension Age’ - in
current legislation - and the consequent ‘Normal Pension Ages’ for
scheme members is for it to increase to 66 in 2026, to 67 in 2036
and to 68 in 2046.
The Government has declared its intention to
accelerate and extend these increases and the Pensions Act 2011
brings forward the implementation of age 66 to 2020. It has
announced further legislation to raise the State Pension age to 67
by 2026 and said further increases will follow based on demographic
evidence.
It would not be unreasonable to assume that
State Pension age would rise by a year every ten years after
2026.
On this basis individuals might anticipate
their state pension age and normal pension age at retirement to be
as
follows:
| Date of birth |
Pension age |
| Before 1954 |
65 |
| 1954-1959 |
66 |
| 1960-1969 |
67 |
| 1970-1979 |
68 |
| 1980-1989 |
69 |
| 1990 on |
70 |
As the state pension age increases it will impact on all benefits
the member has earned in the new scheme.
All bandings are approximate as timing of new
scheme is uncertain.
It should be noted that the Government is
considering accelerating the rise in State Pension Age above age
66. If State Pension Age increases further or faster it will impact
on all benefits the member has earned in the new scheme.
Members who choose to retire earlier than
their Normal Pension Age will be able to do so but the pension
earned after 2015 would be reduced by around 5% for each year
‘early’ they retired. So if members chose to retire at 60 then
their post-2015 benefits would be reduced by between 25% and 40%,
depending on their age in 2015.
The impact is moderated by Normal Pension Age
for pre-2015 benefits remaining as now, which phases in the
impact
This proposal raises issues in relation to age
discrimination. It also implies retrospective reductions in
benefits if State Pension Age is increased further or faster after
the new scheme starts in 2015. It will make the projected benefit a
member will receive much less certain.
The proposal is designed to offset rising cost
of benefits caused by members living longer. At present, agreements
are in place whereby future cost rises arising from lower mortality
are offset by a process of negotiating offsetting changes in member
contributions and benefits (under the cap and share
arrangements).
In July 2011 the Government said that
discussions in relation to each of the schemes could consider a
different approach to normal pension age and offsetting the cost of
lower mortality. However, any alternative arrangements would need
to save as much money as if this proposal had been adopted.
In November 2011 the Government decreed that all schemes would
have to have a Normal Pension Age equal to state pension age and no
flexibility on this would be allowed.
It also announced that it would exempt all members within 10
years of their Normal Pension Age, as at April 2012, from any
detriment from a higher pension age, and considered a tapered
protection for those 3-4 years younger. Unions had been
pressing for change in the pension age policy and for protection
for all existing members, but this limited proposal was announced
unilaterally and without prior discussion.
