CIRCULAR:2016HOC0086SS

3rd February 2016

TO:BRIGADE SECRETARIES

Dear Brother/Sister,

PUBLIC SERVICE PENSION INDEXATION AND REVALUATION 2016

On 2nd February 2016 the Chief Secretary to the Treasury (Greg Hands) made a written Ministerial Statement in relation to public service pension indexation and revaluation 2016.

This statement explained how key public service schemes would be affected.

You may be aware that public service pensions in payment and deferment are indexed annually, and the legislation requires them to be increased by the same percentage as additional pensions (State Earnings Related Pension and State Second Pension). This measure is currently Consumer Prices Index (CPI).

Because CPI up to September 2015 was minus 0.1 per cent, public service pensions in payment and deferment will not be increased this year. (This applies to final salary type schemes such as the firefighters’ pension schemes and the LGPS. The new schemes which are not final salary schemes are affected differently.)

Impact On CARE Schemes

In the new career average revalued earning (CARE) public service pension schemes it is different. Unlike final salary schemes, in a CARE scheme pensions in accrual are revalued annually in relation to either prices or earnings depending on the terms specified in their scheme regulations.

The Public Service Pensions Act 2013 requires HMT to specify a default measure of prices and of earnings to be used for revaluation by these schemes. However, it also allowed each separate scheme to vary its revaluation rates. Any variation was offset against the accrual rate to keep the scheme within the cost ceiling.

In simple terms, in a CARE scheme revaluation is the method whereby the amount of pension that members earn in a year is increased to theoretically keep up with the increasing cost of living.

Typically, schemes with lower revaluation will have faster accrual, and therefore members will earn more pension per year.

In the case of the 2015 firefighters pension scheme, the revaluation rate is average weekly earnings, while in the LGPS 2014 it is CPI.

Contd / …..

This earnings measure is the Whole Economy Average Weekly Earnings (non-seasonally adjusted and including bonuses and arrears) up to September 2015. Public service schemes which rely on this measure of earnings, therefore, will use the figure of 2.0 per cent for the earnings element of revaluation.

Comparison Between Public Service Pension Schemes

The following list shows how the main public service schemes will be affected by this revaluation decision from 1 April 2016:

Scheme / Fire / LGPS / Police / Civil Servants / NHS / Teachers / Armed Forces / Judicial
Active revaluation rate / 2.00% / -0.10% / 1.15% / -0.10% / 1.40% / 1.50% / 2.00% / -0.10%

Hopefully this brief explanation will be of assistance to you.

Yours in Unity,

SEAN STARBUCK

National Officer

SS/kc