Police pension reform announced

In a written ministerial statement, Home Secretary Theresa May outlined the key feat­ures of the proposed new police pension scheme for England and Wales, which has been developed in consultation with the ­Police Negotiating Board.

The review of police pensions was ­undertaken following the Winsor review of police terms and con­ditions, and reflects the principles for reform set out in the Hutton report on public-service pensions. A number of supporting documents have also been published, fleshing out some of the details and providing some information about costings.

Similar features as other public-service schemes

The proposed scheme contains similar features to those of the revised schemes for other public services, although some aspects remain to be settled. The Government is hoping to introduce the scheme in April 2015. According to the statement, the key features of the new police scheme are as follows:

  • It will be based on career-average revalued earnings.
  • The provisional accrual rate will be 1/55.3 of pensionable earnings, with no cap on the amount of pension that can be accrued.
  • While the member is still in service, the pension will increase in line with the consumer prices index (CPI) plus 1.25% (deferred pensions and those in payment will continue to increase in line with CPI).
  • Average member contributions will be 13.7% from April 2015.
  • The normal pension age for members still in service will be 60, although flexible retirement terms will be offered from age 50, and pension age for deferred pensioners will be the state pension age.
  • Ill-health, death and dependants' benefits will continue unchanged.

Transitional protections

The reform design framework contains a number of transitional protections, together with guaranteed protection for accrued rights. All current members of both the 1987 and 2006 police pension schemes who were within 10 years of their current normal pension age (which is 55) on 1 April 2012 will continue to receive the same level of benefits, provided they do not switch schemes.

Similar protection will be given to members of the 1987 police pension scheme who were within 10 years of age 48 on the same date and who meet certain service requirements. There will also be a period of taper protection for members who are within four years of qualifying for full trans­itional protection.

In addition, there will be full accrued rights protection for all members similar to that provided under other public-service schemes. So all benefits already accrued under the current police pension arrangements will continue to be linked to the member's final salary until they leave the new scheme. Members of the 1987 scheme will receive full recognition of certain service enhancements under that scheme, and members of both schemes will be able to access their benefits from those schemes at the normal pension age under the schemes.

Outstanding issues

The Home Office has laid down a gross-cost ceiling for its preferred scheme design. This is 28% of pay, of which 13.7% will be met by employees. The cost cap is based on "cap and share" principles. This means that changes to contribution rates due to "member costs", such as changes in longevity, will be governed by the cap. Financial cost pressures, including changes to the discount rate, will be met by employers.

However, the contribution rates under the proposed scheme, together with the phasing-in of increased contribution rates under the current police schemes, still remain to be discussed in detail with the Police Negotiating Board. The Government is intending to review the impact of the 2012/13 contribution increases, including opt-out rates, before deciding on how to implement future contribution increases. The contribution rates to be paid by members benefiting from trans­itional protection are also still subject to negotiation.

Other matters that are currently undecided include: a timetable, terms of reference and processes for reviewing normal pension age; certain equality ­issues; and arrangements to ensure compatibility between the new scheme and any other existing or future arrangements for officers leaving before normal pension age.

The Government believes that if these changes are introduced, no further changes outside the processes agreed for maintaining contributions within the employer's cost cap should be necessary for 25 years.