01 August 2015

The information contained within the following news articles have been pre published. The articles were published on the dates indicated and the information contained within these issues include references to taxation, legislation, regulation and other issues or concerns that may no longer apply

How the public sector pension change will affect you


If you’re a worker in the public sector, you can expect to see massive changes to your pension by 2015, following Lord Hutton’s report on the future of final salary pension schemes.

As well as saying that you will have to work longer, his report proposes that pensions should be calculated as a proportion of average salary over a career, rather than final salary.  It also advocates that public sector workers pay more in.  Interestingly, the MPs’ final salary pension scheme is not part of Lord Hutton’s remit.

Let’s examine the implications of the report and how they may affect you.


How will my pension change?

Your pension will be calculated as a proportion of your average salary over your career.  This will penalise those on high salaries, rather than the low paid (this has already been implemented for anyone who joined the civil service after 2007).  In addition, you can expect to see the retirement age rise to 66 by 2020.  Public sector workers can also expect to see their contributions increase, possibly by 3%, but this will vary across the board.


Will my pension fall?

It is estimated that middle and higher paid earners will have to save an additional 20% of their pay in order to make up for the drop in benefits.  For example, a teacher on a current salary of £50,000 and final salary of £62,000 would now receive a pension of £27,900, as opposed to £35,400 under the old scheme. (Source: Sunday Times 13.03.11)


What can I do?

Save more. One way to do so is to take out a personal pension, such as a SIPP (self-invested personal pension) into which you can put extra contributions.  You must ensure that your contributions, combined with the value of your accruals in defined benefit scheme, do not exceed £50,000 – the new allowance for pension contributions after April 6.


Remember – your retirement planning does not have to be solely through a pension scheme.  It can include all sorts of investments and annuities, but the tax benefits that apply still make it worthwhile for pension schemes to be included in your retirement planning.  We would be happy to talk to you about the implications of the Hutton report for you, and outline a strategy to ring fence your financial future.


Paul Dixon

Chartered Financial Planner

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