the 6% reduction will be factored into the accrual rates at the age a person decides to take their pension.
I can only guess exactly how this will happen, but i assume it will be something similar to the below based on my current knowledge of the Govt Scheme.
at present depending on which section of the Unified scheme an individual is in they will have an accrual rate depending on which age they draw their pension. (i am not going into every rate for every section of the GUS scheme, but hopefully this will give an idea)
The standard section of GUS for example has an accrual rate of 1.16% for pension taken at age 60.
this would mean that for 1 years service a member would get 1.16% of their final pensionable pay for each year of scheme membership.
if a person retired at age 60 with for example 20 years service and £20k final salary they would get 20 x 1.16% x 20,000 = £4640 annual pension (before any reduction for lump sum)
The benefits reduced by 6% would be reduced accordingly. i.e. 1.16% x 0.94 = 1.09%
20 x 1.09% x 20,000 = £4361.60 annual pension.
hopefully this helps your understanding a little better.
*if you are interested in the accrual rates for other ages and scheme sections see page 14 https://www.gov.im/media/1352065/iom-government-unified-scheme-guide-august-2016v3.pdf
just alter the figures above accordingly to work out what level of pension someone in each section of the scheme can expect to obtain.
Thanks for that, so it's smoke and mirrors again, not 6% reduction but 6% of 1.6%, that will sort out our problems. The poor people on 20k final salaries are not the issue here really, when are we going to tackle the fat cats?
A 6% reduction in the accrual rate translates to a 6% reduction in pension benefits received at retirement.£4,361.60 = 94% of £4,640.
I pulled the years served and final salary out of the air to give an example of how the pension is calculated.
just substitute £20K in the calculation to any amount you so choose. lets calculate for £60k final pensionable pay for arguments sake.
20 x 1.16% x 60000 = £13,920
20 x 1.09% x 60000 = £13,080 (£13,080 = 94% of £13,920)
40 years service at age 60 (for comparison)
40 x 1.16% x 60000 = £27,840
40 x 1.09% x 60000 = £26,160
I'm not trying to justify the pension scheme or give an argument as to whether or not it is justifiable
this is just an example of how the reduction on future benefits is likely to look in real terms.
I am sceptical as to whether the 2.5% increase in contributions and 6% reduction in benefit accrual will be enough to plug the deficit as it stands.
It certainly won't do much when you consider the current pensioners/people retiring in the next couple of years won't be taking any real hit on their accrued pension benefits.
I can definitely foresee further reductions to the accrual rates coming over the next umpteen years.
Thanks for your input.I agree.
The issue too is that the 2.5% is actually phased in right?
To address it properly it should probably have been a more sizeable increase with immediate effect.
And of course you are 100% correct in that the really big issue is with the recently retired (where in many cases, especially office work civil servants, paid next to nothing in).
Do you know if the MHK's Tynwald scheme is impacted? Perhaps Chris Thomas can let us know? They accrued at a rate (from memory)at a rate of 2 years for each year done into a 1/60th's scheme. If that is the case their pension benefits accrue at a rate of 3.32% (of final salary) per annum
Tynwald members are excluded from this change. See the bullet points on the second page of the explanatory memo to Tynwald: