- What is Government Policy on public sector pension reform?
Government policy, led by Treasury, is to reform public sector pension schemes, implementing the recommendations made by Lord Hutton’s review in 2011.
The aim of the policy is to put public sector pensions on an affordable and sustainable footing. All public sector pension schemes that were not initially reformed were required to do so by April 2018. Although this timetable has had to be delayed, the policy has not changed.
Government policy is to remove final salary linked schemes and implement CARE reform, while protecting whatever benefits individuals have already accrued.
- Why is the Government reforming public sector pensions?
The cost of public sector pensions to the UK taxpayer represents a significant element of public spending. The reforms that have already been implemented across most of the public sector are intended to ensure that publicly funded pensions are fair but also sustainable in the face of a challenging economic climate.
- What is the NDA’s role in respect of the reforms?
The NDA is responsible on behalf of Government for making the changes necessary to implement the agreed CARE benefit structure for future service.
- Who is responsible for making the decision on how and when pension reform will be implemented across the NDA estate?
Government is responsible for making the decision on how any pension reform is to be implemented across the NDA estate, having considered the feedback which was provided during the consultation period.
Following completion of the Consultation in 2017, feedback from employees and their representatives was considered and shared with Government for deliberation in their decision making. This in turn led to the decision being made to propose a CARE benefit structure for future service, which was subject to trade union ballot in 2017.
- Why are the final salary pension schemes across the NDA estate within the scope of public sector pension reform?
There are two pension schemes operating across the NDA estate which continue to offer final salary linked benefits. Following widespread reforms across the public service, these two final salary schemes are now out of line with pension provision for the majority of public service workers elsewhere. Government is therefore clear that some reforms to these schemes are required.
The NDA and its operating companies are classified as public sector by the Office of National Statistics (ONS). The ONS determines whether a body falls within the public sector by reference to objective criteria, including governance, funding, ownership and function of these bodies. The NDA estate’s annual budget is over £4 billion, the majority of which comes from the public purse. This is taxpayers’ money that is used by the whole estate to deliver our mission including the operational cost of running of the estate. Operational costs include salary and employer contributions to pensions.
- Which members are affected by the proposed changes?
The pension schemes affected by the proposed public sector pension reforms are the final salary sections of the Combined Nuclear Pension Plan (CNPP) and the Magnox Electric Group of the Electricity Supply Pension Scheme (MEG ESPS).
- How many people are affected by these changes?
There are approximately 7,500 active members of the existing Defined Benefit / final salary pension schemes; these employees are all in scope and part of the consultation.
- Are these proposals being introduced because the existing NDA estate final salary schemes are in trouble?
No. The Government’s public sector pension reforms are being introduced to make all public sector pensions fair, and to put them on an affordable and sustainable footing.
- Why are the pension schemes being reformed when there is no financial need?
The cost of providing final salary pensions is increasing, and are expected to continue to increase in future. The fact that people are living longer and the financial conditions over the last decade have contributed to the rising cost of pensions.
Ensuring the two pension schemes around the NDA group are properly funded is a substantial expense to the NDA and the taxpayer. Any increase in funding costs falls to the employers to meet, and it has become more and more expensive for the taxpayer to fund the NDA final-salary pensions schemes. The schemes are now out of line with pension provision for the majority of public sector workers elsewhere where the pensions of four million employees have already changed. The UK Government has therefore been clear that reforms to these schemes are required in order to ensure they are fair to the taxpayer and on an affordable and sustainable footing for the future whilst remaining fair to the employees.
- Are these pension schemes included in the terms of reference of the Hutton review of public sector pensions or covered by the Public Service Pensions Act 2013?
The employees around the NDA group final salary pension schemes were not included in the terms of reference of the Hutton review as its focus was on unfunded public sector schemes. There were a number of other smaller public sector schemes which did not form part of the review but were required to act on the Commission’s recommendations. The Public Service Pensions Act 2013 listed a number of public bodies whose pension schemes must be reformed. Whilst this did not include the NDA, the funding of the NDA backed sections comes mainly from the public purse. For this reason the UK Treasury confirmed that the NDA final salary pension schemes are within scope for public service pension reform.
- What if changes to the existing pension schemes leads to a loss of highly skilled workers?
To date, there is no evidence to suggest that pension reform in other parts of public sector has resulted in increases in staff turnover. The reforms which will apply across the NDA estate will bring future pension provision in line with the rest of the public sector and will still compare very favourably with the schemes provided by the vast majority of private sector employers.
- How can a CARE scheme be brought into effect when we have statutory protections in place under the Energy and Electricity Acts?
This will require change though legislation. New legislation (Energy Bill 2022) is being introduced to amend the existing statutory protections within the Energy and Electricity Acts in order to implement a CARE scheme.
- How will the changes affect me personally?
Moving the current pension provision to a Career Average Revalued Earnings (CARE) basis for pension benefits accrued for future service from the proposed introduction date, not before 1 April 2024, means that you would cease to build up final salary pension benefits and from then your benefit accrual would be based on career average.
The changes have no impact on any deferred pension or pensions already in payment.
- What pension will I receive if I retire under the CARE arrangement?
This would be based on 1/58th of your Career Average Revalued Earnings.
You would be able to give up some of your pension at a rate of 1:12 to take as a cash lump sum – up to the maximum tax limits. The legislation relevant to cash lump sum limits is being amended in connection with the removal of the Lifetime Allowance. Unless you are subject to specific tax protections, the maximum tax-free limit from 6 April 2024 will be £268,275.
Please note – in all cases, final salary benefits accrued prior to the proposed implementation dates are unaffected and will be preserved.
- How is the CARE pension calculated?
Under the CARE arrangements, each year, from the date on which it is implemented, you will build up a ‘slice’ of pension based on your pensionable pay in that year. The accrual rate for these purposes will be 1/58th of your pensionable pay.
Each slice of pension will be adjusted in line with the Consumer Price Index (CPI) and will be based upon the CPI rate declared for the 12-month period each September.
When you retire, your total pension under the CARE arrangement will be calculated by adding up each of the slices you have built up throughout the years.
- Can I still retire at my normal pension age of 60 to receive my final salary pension accrued before the new scheme is introduced and also take my CARE benefits at the same time?
Yes, you can retire at age 60 and receive the pension accrued from pensionable service up to until the new scheme goes live and at the same time draw your CARE pension accrued from that date.
- Is it true that career average schemes are always worse than final salary schemes?
No. Final salary can be a more attractive option for some people, usually those who expect to progress in terms of grade and pay scale but career average tends to be a better fit for those whose opportunity for promotion is limited or whose salary is likely to remain constant during their career.
- Will my contributions increase?
Most members’ contributions will increase by an average of 3.05% over a three year period.
This is the figure prescribed in the Government’s reference scheme and forms the basis of the cost savings identified by Government.
- I am due to retire soon – will these changes affect me?
Please consult an Independent Financial Advisor should you require specific financial advice regarding your individual circumstances.
There would be no impact on your pension if you are due to retire before the when the new scheme goes live.
In addition, there will be no change to Normal Pension Age.
Most members will however be required to increase their contributions by, on average, 3.05% of pensionable pay and pension benefits which are built up after the the new scheme has gone live will increase, in payment and in deferment, in line with CPI.
Please note – in all cases, final salary benefits accrued prior to the new scheme going live are unaffected.
- Can I do anything to increase the pension I receive at retirement?
You can either buy additional pension or defer your retirement and continue working.
- Does this affect individuals who are already retired?
No, there is no change for final salary members who have already retired, or for those who have left the NDA estate and are no longer contributing to the relevant scheme.
- Will all the current accrued pension benefits be exactly the same for the existing pension up to the implementation of the changes?
Yes. Accrued benefits prior to the introduction of the new scheme are not being changed.
- If I opted out of the final salary pension scheme previously and I want to opt back in at some point will my options be affected by these changes?
Yes. Individuals who have opted out of a final salary scheme and then wish to re-join the relevant scheme after the changes have been made would do so on the new CARE pension terms.
- If I leave the company and then return at a later date will I be able to re-join the pension scheme?
If you leave the company and wish to return at some point in the future you would be entitled to join the current defined contribution scheme that is offered to all new starters. This is of course subject to any statutory pension protections which may apply, depending on how your employment has transferred and changed over time.
- At DRS there were some changes made to our GPS Pension Scheme back in 2011. The responses given to questions at that time directly contradict the information provided today. Can you please comment on these (detailed below)
“The CNPP and GPS are private sector schemes and the Government and HM Treasury have no direct involvement in them. They are not part of the review of public sector pensions.”
“Will the merger bring the GPS a step closer to Government and a greater risk of Government interference in future years?”
The response given then was no and reflected our understanding of the position at the time. Since then, it has been confirmed that the NDA estate’s pension schemes are considered to be in scope for public sector pension reform.
- Will the pension I have accrued to date in my UKAEA pension scheme be affected?
No there is no impact on any accrued pension benefit under the UKAEA Combined Pension Scheme.
- What will be the employer contribution rate to the Shift Pay Pension Plan following implementation of CARE?
The employer contribution rate to the Shift Pay Pension Plan will be the same contribution rate which the employer makes to CARE pensions. The employer contribution rate will therefore vary over time and be different for each of the participating employers depending on that employer’s contribution rate.
- Will the potential change in statutory protection affect others who have protection under the Energy Act 2004 but are no longer active members of these specific pension schemes?
Government has confirmed that any amendment to statutory protection would be limited to active members of the final salary CNPP and Magnox ESPS schemes who are employed at Sellafield Ltd, Magnox Ltd, NTS and NWS.
- Were the views of the trustees of the scheme being sought on these changes? Can the trustees influence or block the changes? If not, why not?
The NDA has kept scheme trustees informed throughout the reform process, and will be working with the trustees closely in respect of the implementation and introduction of the changes.
The changes will be made in accordance with the legislation which requires the CARE structure to be brought into effect for the schemes. As such, the changes will not be subject to the consent of the trustees.
- Will my benefits accrued up to the introduction of the new scheme continue to be increased, when in payment, in line with RPI?
Yes. Any pension benefit accrued prior to the implementation of CARE would, once in payment, increase in line with RPI.
- If my contribution into the new scheme (CARE) is increasing does that mean my employer will also be making a bigger contribution?
No, the employer will not be making a corresponding increase in their contribution under the proposed CARE scheme. The employers will continue to be liable to meet the balance of funding costs in respect of the schemes, which will of course vary over time.
- Will a cash lump sum be available in the CARE Scheme?
Yes. Although there is no ‘automatic’ cash lump sum under the CARE arrangement, you would be able to give up some of your pension by giving of £1 of annual pension for £12 of cash lump sum. This is always subject to HMRC limits. The legislation relevant to cash lump sum limits is being amended in connection with the removal of the Lifetime Allowance. Unless you are subject to specific tax protections, the maximum tax-free limit from 6 April 2004 will be £268,275.
- Is there an option for early retirement in the CARE scheme and if so what age and what % cost to an individual’s pension?
Yes, early retirement is permissible providing this is above the minimum pension age (currently age 55, but increasing to age 57 from April 2028).
This would involve your pension being actuarially reduced to take account of early payment. The actuarial reduction depends upon the age at which early retirement takes place and the normal pension age applicable to you.
- Can I take pension at normal retirement age, remain in employment and remain in CARE to access at the later retirement age? If not, is the National Employment Savings Trust (NEST) the option for pension provision?
You will be required to take your total pension at retirement i.e., your accrued final salary benefits and your CARE benefits at the same time. If you remain in employment, after having started to receive your benefits, you will fall under the auto-enrolment arrangements under NEST.
- Are the benefits of my existing scheme still available, such as:
a. death in service?
b. additional voluntary contributions (AVCs)
Ancillary benefits such as death in service lump sum and Additional Voluntary Contributions would remain unchanged.
- I have been paying into the CNPP and also have benefits in the UKAEA Combined Pension Scheme (CPS) does the implementation of a new scheme mean I will be getting three separate pensions when I retire? If so, when I retire will I be able to draw my three pensions from the same date and at the same time?
A new stand-alone scheme is not being implemented. Benefits payable under the CPS will remain unchanged and the benefits at retirement (or date of leaving) under the CNPP would comprise two elements; a defined benefit, final salary pension based upon service up to the date of implementation and another from the date of implementation based upon CARE.
You will be required to take your total pension under the CNPP at retirement i.e., a single pension made up of your accrued final salary benefits and your CARE benefits at the same time. Your pension from the CPS will be separate.
- In respect of the pension I have already accrued the information states this will still be classed as a final salary pension. Will this be based on my final salary when I retire or leave the company or my salary at the point the pension changes come into effect?
This will be based on your final salary at retirement or when you leave the company, whichever is the earlier.
- Will the changes affect the early retirement options applicable to me under my current scheme in a redundancy situation?
No. The new arrangements will not involve making any changes to the early retirement and redundancy provisions which apply under the existing final salary benefit structure.
- How are redundancy benefits under the Schemes affected by the CARE arrangement?
Depending on your circumstances and which scheme which you are a member, an early retirement pension may be payable to you on an enhanced basis (such as being paid before your Normal Pension Age without being reduced for early payment) if your employment is terminated on grounds of redundancy.
The reforms to the future accrual of pension benefits in the Schemes do not include any changes to how an early retirement pension (which is paid on grounds of redundancy) is enhanced, if the relevant conditions for payment and any enhancement are satisfied.
The basis on which the pension will have built up prior to termination of employment would however change as this will now be on a CARE basis rather than final salary.
- Why aren’t Defined Contribution (DC) members included in this consultation and being offered membership of the CARE scheme, as this is specifically referred to in the Hutton review?
In 2011, the Independent Public Service Pensions Commission was asked to review the affordability of public sector pensions and found that public sector final salary defined benefit schemes were unable to respond flexibly to workforce and demographic changes over the previous few decades and recommended that these schemes be reformed. The NDA estate introduced Defined Contribution Schemes for new starters in 2006 and therefore there are only two pension schemes operating across the NDA estate which continue to offer final salary linked benefits (CNPP and Magnox ESPS).
The recommendations made by the Independent Public Service Pension Commission resulted in widespread reform of final salary schemes across the public service and these two final salary schemes are now out of line with pension provision for the majority of public service workers elsewhere.
The affordability of DC schemes was not under review and DC members are, therefore, out of scope for the purposes of these changes.
- Considering current performance levels and the national importance of delivering the mission safely and securely, has the Government or NDA considered the impact of this process on employee morale?
The potential impact of Public Sector Pension Reform on employees across the NDA estate was carefully considered by the UK Government (as it was for the other public sector workers, including nurses and firefighters, who have had their pensions reformed). We understand and appreciate that pension reform is a sensitive issue. The consultation process which was followed in 2017 was designed to enable members to express their thoughts and views regarding the proposed changes whilst at the same time remaining professional and safety conscious.
Government policy is to make current and future costs of public service pensions fairer between scheme members and other taxpayers and put them on an affordable and sustainable footing, whilst ensuring a good level of retirement income.
- Will the current approach to the Barber judgment (i.e. equalisation of retirement ages for men and women) remain in place where a member can increase their pension and lump sum benefit if they choose not to leave at age 60 and remain in service until age 63?
The changes will not involve a reduction in benefits which members have already accrued in their respective scheme. Therefore, to the extent that a member has a right, as a result of the Barber judgment, to an actuarial increase in respect of his/her pension and lump sum benefit if payment of the benefit is deferred beyond age 60, such right would not be reduced in respect of the member’s accrued benefit.
- What happens if I have already consolidated a previous pension into my current scheme and bought additional years of service within the current scheme?
There will be no change to any benefits accrued before the implementation of the CARE benefit arrangements. This includes pensionable service which has been transferred in from another scheme.
- What is the definition of pensionable salary for part-time workers with a pro rata salary?
Under the CARE arrangements, your actual pensionable earnings would be used to work out your benefits.
- My pensionable salary is determined by the average of the highest three years within the last ten. Will this arrangement still stand?
There will be no change to any benefits accrued before the introduction of the new CARE scheme.
Under the CARE arrangements, future pensionable service benefits would no longer be linked to final salary and would instead be based on your career average earnings.
- Do the proposed changes affect the ill-health retirement options currently in place?
There will be no change to the criteria which need to be met for someone to qualify for ill-health early retirement.
- Can individuals transfer their deferred entitlement into a Self-Invested Personal Pension (SIPP)?
Yes, this is already the case under the current arrangements. It would, however, be essential for anyone wishing to do so to take independent financial advice
- Will payments continue to be made through the SMART pension system going forward?
Yes, where this currently applies.
- Will members be able to transfer-in pension benefits from previous schemes?
There would be no change to existing ‘transfer-in’ policies and, as such, you will not be able to transfer a previous pension into your existing scheme irrespective of the pension reforms.
- What is the position in respect of buying ‘added years’?
Under the CARE arrangement, individuals would be able to purchase added pension and existing “added years” contracts would be honoured.
- If individuals only input into the CARE scheme for a short period of time before they retire, will they be able to withdraw the CARE element as a lump sum rather than a small monthly sum?
No. The amount of pension built up under the CARE arrangement would be payable in accordance with the rules of the scheme regardless of the size of benefits.
- The revaluation rate in the CARE arrangement is the Consumer Price Index (CPI). Why was this measure chosen?
This is the UK Government’s current measure of inflation and was identified during negotiations with the trade unions and accepted as an approach which would enable key elements of the original CARE proposal to be reviewed, such as retaining current normal pension age.
- Can you confirm, with the tiered approach to increases in member contribution rates, if an individual’s salary is only slightly over a threshold is the new rate payable on all of the individual’s pensionable salary or just the portion that is over the threshold?
The tiered contribution approach is linked to your total pensionable earnings. For example if an individual has pensionable earnings of £44,000, they will pay 9% on all pensionable earnings (i.e. £44,000) once the full increase has been implemented as this figure is above the threshold of £43,001.
- Will the tiered contribution thresholds increase each year in line with the income tax bands?
Contribution thresholds will be reviewed regularly to ensure the overall average level of contribution remains at 8.2%.
- Scotland has different income tax thresholds, what impact does this have on the tiered approach to the increase in member contributions?
There is no impact. The tiered member contribution rates and the thresholds detailed in the revised CARE proposal factsheet would apply to all members of the pension schemes in scope.
- Will the employer contribution increase with the revised CARE scheme?
In line with previous public sector pension reforms, the employers will not be making a corresponding increase in their contribution under any of the proposed schemes. The employers will continue to be liable to meet the balance of funding costs in respect of the schemes, even after current active members cease contributing. The employer liability to meet the overall funding costs of providing the scheme benefits will of course vary over time.
- Can you explain how the Adult Dependant’s benefit, which is 37.5% of pension, compares to the current DB schemes?
The Adult Dependant’s benefit under the CARE arrangements will be 37.5% of accrued benefits, which is a lower percentage than the range of 50% to 57.16% of accrued benefits in the existing schemes.
However, the accrued benefit in the revised CARE proposal would be built-up with annual accruals of 1/58th of pensionable pay (indexed in line with CPI) whereas the existing schemes would be built-up with an accrual rate of 1/80th of final salary.
- I am a member of the Magnox Group ESPS and as I am over 60 I am currently not making contributions into the current pension scheme. I understand that I will now be required to pay into the CARE scheme, how will this work in practice?
Under the new CARE arrangement, you would be required to make a contribution into the scheme.
- How is accrued service beyond 40 years applied in the CARE scheme as this is currently capped in the ESPS scheme?
Under the CARE arrangements, neither service nor pension will be capped for CARE accrual after its introduction.
Any existing maximum limits will remain in respect of accrued service up to the introduction of the new scheme.
- What changes will be made to pensionable shift pay under the CARE arrangements?
There will be no change to pensionable shift pay.
Where it is pensionable on a defined contribution basis it will continue unchanged and where it is currently pensionable on a final salary basis it will continue to be pensionable, but on the CARE basis for service after its introduction and on a final salary basis for service before this date.
- With the CARE arrangements, does accrued pension in the existing final salary scheme continue to give spouses pension on death at the existing level?
Yes. All accrued benefits prior to the implementation of any changes remain unchanged.
- Will I be able to take a cash equivalent transfer value (CETV) of my accrued final salary pension and remain in my current pension scheme and continue to build-up a CARE pension in the future?
In order for you to take a CETV into another pension arrangement, you must cease accrual by leaving employment or opting out of your pension scheme and become a deferred member. As a deferred member, you will lose future accrual of pension and the additional death in service lump benefit provided by your pension scheme. You should check with your employer what life assurance benefits may continue if you do choose to opt-out of the scheme.
If you are a member of the CNPP and if you have not previously opted out and re-joined the scheme, you will be allowed one further opportunity to re-join on evidence that your health is satisfactory.
If you are a member of the Magnox Group ESPS or the CNPP who has previously opted out and re-joined, your employer will only be able to offer you membership of the National Employment Savings Trust (NEST) which is a defined contribution arrangement.
Anyone wishing to opt-out of the pension scheme should seek independent financial advice before doing so.
- I currently pay extra contributions to a DC pot via the Additional Voluntary Contributions scheme. Will these continue or do I need to do something?
These Additional Voluntary Contributions can continue to be paid to your DC pot.
Your current Additional Voluntary Contributions to your DC pot will continue on and after 1 April 2024 at the same rate as you are paying before that date.
You will be able to contact the Scheme’s administrators in the normal way if you wish to make any changes to your Additional Voluntary Contributions in the future.
- I am planning on retiring a short time after the implementation of the new CARE scheme, can I opt out and are there any ramifications if I do?
You can opt-out of the Scheme at any time. However, we would strongly suggest that you obtain independent financial advice before taking any such decision.
If you opt-out of the Scheme you become a deferred member, you will lose future accrual of pension and the additional death in service lump benefit provided by your pension scheme. You should check with your employer what life assurance benefits may continue if you do choose to opt-out of the scheme.
- I am planning on retiring a short time after the implementation of the new CARE scheme, Can I take my CARE scheme all as a cash pot?
No. You are not able to take all of your CARE benefits as a cash lump sum.
In the unfortunate event that you suffer from a serious ill-health condition, you may be able to exchange all of your benefits under the Scheme for a single cash lump sum. However, these are limited circumstances.
- I am working beyond my Normal Pension Age, will I still be able to build up a CARE pension if I continue working?
Yes. You can continue to build up a CARE pension after your Normal Pension Age.
- How much does my employer contribute currently to my pension and what will that be once CARE is introduced?
The employers meet all the funding costs of the Scheme over and above the contribution rates by Scheme members. The employer contributions (which include any amounts needed to meet any funding deficit in the Scheme) varies by employer, and is assessed at least every three years as part of the formal actuarial valuation of the Scheme.
The employer contribution rate currently (up to 1 April 2024) varies between 25% and 43.1% of your pensionable pay depending on the employer; as an example, Sellafield’s contribution rate for the CNPP Sellafield Section is 32.1%. The employer contribution rates to apply under CARE (from 1 April 2024) are expected to vary between 25% and 38.9%; with Sellafield’s contribution to the CNPP Sellafield Section expected to be 29.9%.
- What is the earliest age I can access my pension?
If you are in good health, the earliest age from which you can access your pension benefits is 55. Please note that in many cases this will increase to age 57 with effect from 6 April 2028 as a result of changes in legislation. You can check how this applies to you with the Scheme’s administrators.
If you are suffering from ill-health, you may be able to access your pension benefits from an earlier age. You should contact the Scheme’s administrators for further information on this if you think it may apply to you.
- Is there a penalty if I wish to access my final salary and CARE pension before my Normal Pension Age?
If your pension benefits are paid before your Normal Pension Age, they will be subject to a reduction to reflect the early payment and that the pension will be in payment for a longer period. Such reductions are calculated based on actuarial advice.
- If I wish to purchase Added Years to increase my final salary pension what do I need to do and by when?
It will no longer be possible to purchase Added Years to increase the final salary part of your pension after 1 April 2024.
Under the CARE arrangement, there will be an option to purchase Added Pension. Information about Added Pension together with a calculator is available on the CNPP website and the MEG ESPS website or contact your company pension representative for further information.
- Is there a limit on how much I can additional contributions I can pay once CARE is introduced?
There is no limit on the total amount of additional contributions which you can pay once CARE is introduced other than all contributions must be made out of the pay you receive from your employer. You should of course consider how tax relief and the annual allowance will apply to your contributions, and seek independent financial advice as required.