Pension Reform Uk

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“Britain is facing the threat of mass walkouts by (millions of) public sector workers after the biggest unions announced strike ballots over pensions” (BBC News September 2011). Teachers and university lecturers are also planning to strike. Critically assess why substantial reforms are being planned for public sector pensions and the effects on the personal finances of those affected by such reforms.

The difference between many tax and benefit changes the government proposes and the reforms of publics pensions is that pension reforms will take many years to come into effect completely. This essay will be examining the reasons behind the recent reforms of the public sector pensions and the effect it will have the on the personal finances of current and future pensioners, as it is inevitable that the reforms will affect the personal finances of anyone within the public sector as it will ultimately affect their retirement incomes in the future. The pension reform is expected to be introduced in 2012. The government has said that the overall aim of the reform is to get more people to save for their retirement. The general consensus from the change is that workers are being made to pay more, work for longer and receive less when they retire. This consensus is understandable because ultimately that is exactly what is happening, however whether or not it is bad thing is under question. In summary the changes will make the retirement age rise to equal the state retirement age of 65, and then when the state retirement age increases to 68, the public sector retirement age is to rise in line with it. The state retirement age is planned to increase from 65 to 66 by 2020 and then to 67 by 2036 and 68 by 2046(Jackson Jeffery, Pension Reforms 2012).

In regards to paying more, the government has said that employees within the public sector get an increase on average of 3.2% over the next 3 years (2012-2015). For some employees this could work out at a contribution of over 50% depending on how much they already contribute (HM Treasury . 2012). For a nurse on £30,000 a year his/hers gross pension contributions could increase from £1950pa to £2910pa, an increase of over £960 per year or £80 per month. As this increase is only an ‘average’ some employees will have little or no increase at all, with the higher earners seeing this increase of over 3.2% on their contributions over the next 3 years(HM Treasury . 2012). The reform has suggested that the final salary pension that many existing public sector employees are on, should be changed to pensions that build up on a career basis, by 2015. The reforms have stated that the acquired earning employees have built up on a final salary pension will be protected; however future benefits pensions’ service and benefits would be based on the new average earning pension. Many employees who are early or mid-way through their career, and were on final salary pension, will notice a big difference from what they were going to be receiving when they retire. Also public sector pensions will now follow the consumer price index (CPI) which is usually lower than the retail price index (RPI) which the pensions were following; to increase pensions in retirement will mean that in the future retirement pensions will not necessarily increase as much as they did in the past. The paper will now go into more detail to examine whether or not workers will be worse or better off due to the reform. As mentioned earlier the final salary pension is going to be stopped within the public sector, no one will be able to acquire one and if they are on one it will be switched to the career average earning pension, these changes will not apply to employees within 10 years of normal pension age on 6 April 2012. They are not that dissimilar; both give the employee a pension at retirement that is worked out as a proportion of their pay. The final salary scheme is worked out by using the employees pay that they received in...
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