Improved Pension offer to public service workers

Public Service Pensions Reform - Good pensions that will last

- An improved rate at which pension entitlement is built up - moving from an accrual rate of 1/65ths to 1/60ths. This represents an increase in generosity of 8% on the previous proposal.

- Generous transition protection: it is the government's objective that public sector workers with less than 10 years to pension age will see no change in the age at which they can retire, and no decrease in the amount of pension they can receive.

This package represents a generous offer that will deliver reform that is fair to everyone - public sector workers and other taxpayer alike. If agreed, it is a sustainable settlement that we can be confident need not be revisited for a generation

It is a package that offers workers on low and middle earners an income at retirement that is at least as good as it is now.

These revisions come on top of government proposed reforms that:

- Retain "defined benefit" pensions based on a proportion of your pay rather than the value of your contributions.

- Completely protects all benefits already earned, and the age at which they can be claimed

- Continues to ensure the government pays more overall towards pensions than the workforce.

- Distributes spending on pension benefits more fairly across the workforce - by basing pensions on a career average rather than final salary

The Government can afford to make this generous offer because the taxpayer will be protected from future increased costs through:

- Linking the normal retirement age to the State Pension Age

- Increasing contribution rates by 3.2% over the next three years - to get the balance right between taxpayer and public service worker contributions.

- Switching the uprating of pension from RPI to CPI

Public sector pensions are recognition of the dedication and hard work of millions of public sector workers. This Coalition is determined to make sure they stay amongst the best available. But because we are all living longer the costs of public service pensions is increasing, and will keep going up unless we do something about it - asking other taxpayers to work longer and pay more so public sector workers don't have to just isn't fair.

Going ahead with public sector pension reform is not easy, but it is the right thing to do. We have to be fair to everyone - taxpayers and public sector workers alike. That's why we are urging Trade Union members and public service workers to seize this opportunity to settle the question of reform in the fairest way possible, and in doing so secure a deal that will last for a generation.

Two useful case studies

• Take a nurse retiring on a salary of just over £34,000: on the basis of our proposals today, after working a full career they would receive £22,800 of pension each year at retirement - whereas under the current 1995 NHS Pension Scheme 1995 arrangements, they would only get £17,300;
• A teacher retiring on a salary £37,800 after a full career would receive £25,200 each year under our proposals, rather than the £19,100 they would currently earn in the final salary Teachers' Pension Scheme (pre-2007).

[If pushed - a 'full career' under the Government's proposals today means working longer, until 66 rather than 60 for the examples given above.]

More useful facts:

• The Government's offer will mean that low and middle income earners will receive at least as good a pension at retirement after a full career as they do now.
  • Costs have risen by a third over the last ten years. We need a fairer balance between what employees pay and what other taxpayers have to pay.
  • Public service pensions will still remain among the very best available, with a guaranteed benefit in retirement and all benefits already earned protected.
  • The average 60 year old is living ten years longer now than they did in the 70s.
  • The cost of public service pensions has risen by third over the past ten years to £32bn. That's more than we spend on police, prison and the courts.
  • These costs have generally fallen to the taxpayer. This is unfair and unaffordable.
  • We have listened to the concerns of the unions and made our proposals more generous.
  • Although we are asking them to work longer, many staff will be able to retire on a bigger pension than they expect today.
  • Many would have to contribute a third of their salary to get the same pensions in the private sector.

These reforms are designed to last for the next 25 years - a settlement for a generation.