Download - OSPS
CONSULTATIONON
PROPOSED CHANGES
OSPS
We are living longer
Longer pensions need more funding
WHY?
Run up debt Rely on investments Increase employer contribution Increase employee contribution Reduce benefits
OPTIONS
OSPS has £82 million deficit Not life-threatening, but unhealthy At present rates will take 17 years to pay
down Need to reduce, not grow, the deficit Bring payment down to around 10 years
DEFICIT
Market conditions unhelpful
Unlikely to improve for some time
INVESTMENTS
Has already increased over time now at 21.5%
18% goes to funding future benefits leaves little to pay off deficit
Employers committed to keeping this level but need to increase share that goes
to pay deficit
Target – find 4% savings
EMPLOYER CONTRIBUTION
You already pay 6.35% To reach 4% savings target, would need to rise to
over 8% for everyone Unacceptable Need to keep employee costs to reasonable level If possible, offer a lower cost option for those who
can afford least
EMPLOYEE CONTRIBUTION
Committed to a good, affordable pension based on salary and defined benefits
No radical reductions But some savings unavoidable
REDUCE BENEFITS
Run up debt Rely on investments Increase employer contribution No other choice Increase employee contribution Reduce benefits
OPTIONS
Proposals are all about the balance between extra costs and lower benefits
What is the best combination to achieve the necessary savings?
Best for scheme, best for members We offer options You must let us know your preferences
CONSULTATION AIM
If accepted, changes will be implemented on 1 January 2013
Proposed changes only affect future service
Past service is not affected The proposed changes will not affect any
benefits you have earned up 31 Dec 2012
IMPORTANT NOTE
Average age 45 Average service 8 years Average salary £20,000
MR AVERAGE
Age Under 30 30-40 40-50 50-60
Average service 2 years 5 years 8 years 10 years
Average salary £18,000 £20,000 £21,000 £21,000
Number of members 643 869 1070 1163
Relatively low salaries Relatively stable salaries Many joiners do not stay to retirement But older joiners often do High turnover means there are many
deferred members
MR AVERAGE
SalaryFinal Salary or CARE
Adjustment for inflationRPI or CPI
Accrual rateFaster or slower
Employee contributionHigher or lower
Insurance benefits
WHAT COULD WE CHANGE?
Final Salary Uses your finishing salary as the base for
pensions calculation Tends to favour those who achieve
promotions and big pay rises towards end of career
Final Salary or CARE
Career Average Revalued Earnings (CARE) Pension based on earnings each year Revalued to adjust for inflation Fairer than FS Works for those who do not receive late
career promotions May even out-perform FS in periods when
inflation is greater than pay awards
Final Salary or CARE
Proposal is to move all members to CARE from 1 Jan 2013
Believe it is well suited to the profile of theOSPS member
Final Salary or CARE
Inflation index used to revalue:
pension payments deferred pensions CARE contributions
CPI or RPI
CPI on average 0.7% p.a. lower than RPIover time this can make a big difference
The effect gets bigger the longer you pay contributions (under CARE)the longer your benefits are deferred before you take themthe longer you live after taking your pension
CPI or RPI
CPI brings big savings
Many pensions have moved to CPI
Our proposal is to keep RPI
Better protection against inflation for thoseon modest salaries and pensions
CPI or RPI
Pension scheme has to be protected againsthigh inflation
In unlikely event inflation goes above 8%adjustments will be capped at that level
Inflation Cap
Current accrual rate 1/80 Savings if rate reduced to 1/85 or 1/90 This means
if you pay the same contributions for the same period of time, you finish with a smaller pensionorif you want the same size pension, you have to work longer
Faster or slower
Working longerIf at 1/80 it takes 10 years to build pension X
at 1/85 it takes 10 years 8 months at 1/90 it takes 11 years 3 months
Some people are working longer anywayNo compulsory retirement age
Faster or slower
No appetite for large increases in employee contributionsSome members prepared to pay a little more to retain better benefitsOthers cannot afford more, or might join the scheme if contributions were lowerSuggests a flexible approach
Higher or Lower
One savings option is to reduce benefits paid to family on your deathDependants pension
currently 2/3rd; could be reduced to 1/2Death in service lump sum
currently 4x salary; could be reduced to 3x
Would allow more flexibility in employee contributions and accrual ratesBut depends on the value you place on these benefits
Insurance benefits
Pension age 65 then State Pension Age
No upper age limit to joining Late pension benefits Flexible retirement
Other changes
Brought all this together to propose two packages
Both have CARE RPI Inflation cap Annual choice of cost plan
Packages
Members choose between three cost plans
Insurance benefits are reduced
Package A
Cost plan
Employee contribution
Accrual rate
Change in weekly
cost
Lower 5.6% 1/90 £2.88 less
Standard 6.6% 1/85 £0.96 more
Higher 7.8% 1/80 £5.58 more
Flexible optionIncludes an employee contribution rate lower than nowOffers possibility of keeping same accrual rate as nowBut only possible by reducing insurance benefits
Package A
Members choose between two cost plans
Insurance benefits are kept at current levels
Package B
Cost plan
Employee contribution
Accrual rate
Change in weekly
cost
Standard 6.5% 1/90 £0.58 more
Higher 7.5% 1/85 £4.42 more
Less choiceNo cheaper optionNo possibility to pay for same accrual rate as nowBut insurance benefits are maintained at current levels
Package B
More past service, less the effect of changes
CARE will impact more if you expect significant promotion
Both packages make savings by slowing accrual rate but how long would it take to ‘catch up’?
Both packages ask you to pay more for the standard package
but how much do I want to pay for a good pension?
Worse off – how much?
Left options open so we can take account of your viewsNow:
Feedback at meetingsEmail or letter
UnionsMay:
Questionnaire
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