CONSULTATIONON

PROPOSED CHANGES

OSPS

We are living longer

Longer pensions need more funding

WHY?

Run up debt

Rely on investments

Increase employer contribution

Increase employee contribution

Reduce benefits

OPTIONS

OSPS has £82 million deficit

Not life-threatening, but unhealthy

At present rates will take 17 years to pay

down

Need to reduce, not grow, the deficit

Bring payment down to around 10 years

DEFICIT

Market conditions unhelpful

Unlikely to improve for some time

INVESTMENTS

Has already increased over time now at 21.5%

18% goes to funding future benefits leaves little to pay off deficit

Employers committed to keeping this level but need to increase share that goes

to pay deficit

Target – find 4% savings

EMPLOYER CONTRIBUTION

You already pay 6.35%

To reach 4% savings target, would need to rise to

over 8% for everyone

Unacceptable

Need to keep employee costs to reasonable level

If possible, offer a lower cost option for those

who can afford least

EMPLOYEE CONTRIBUTION

Committed to a good, affordable pension based on salary and defined benefits

No radical reductions

But some savings unavoidable

REDUCE BENEFITS

Run up debt

Rely on investments

Increase employer contribution

No other choice

Increase employee contribution

Reduce benefits

OPTIONS

Proposals are all about the balance between extra costs and lower benefits

What is the best combination to achieve the necessary savings?

Best for scheme, best for members

We offer options

You must let us know your preferences

CONSULTATION AIM

If accepted, changes will be implemented on 1 January 2013

Proposed changes only affect future service

Past service is not affected

The proposed changes will not affect any benefits you have earned up 31 Dec 2012

IMPORTANT NOTE

Average age 45 Average service 8 years Average salary £20,000

MR AVERAGE

Age Under 30 30-40 40-50 50-60

Average service 2 years 5 years 8 years 10 years

Average salary £18,000 £20,000 £21,000 £21,000

Number of members 643 869 1070 1163

Relatively low salaries

Relatively stable salaries

Many joiners do not stay to retirement

But older joiners often do

High turnover means there are many

deferred members

MR AVERAGE

SalaryFinal Salary or CARE

Adjustment for inflationRPI or CPI

Accrual rateFaster or slower

Employee contributionHigher or lower

Insurance benefits

WHAT COULD WE CHANGE?

Final Salary

Uses your finishing salary as the base for pensions calculation

Tends to favour those who achieve promotions and big pay rises towards end of career

Final Salary or CARE

Career Average Revalued Earnings (CARE)

Pension based on earnings each year Revalued to adjust for inflation Fairer than FS Works for those who do not receive late

career promotions May even out-perform FS in periods when

inflation is greater than pay awards

Final Salary or CARE

Proposal is to move all members to CARE from 1 Jan 2013

Believe it is well suited to the profile of theOSPS member

Final Salary or CARE

Inflation index used to revalue:

pension payments

deferred pensions

CARE contributions

CPI or RPI

CPI on average 0.7% p.a. lower than RPIover time this can make a big

difference

The effect gets bigger the longer you pay contributions

(under CARE)the longer your benefits are deferred before you take themthe longer you live after taking your

pension

CPI or RPI

CPI brings big savings

Many pensions have moved to CPI

Our proposal is to keep RPI

Better protection against inflation for thoseon modest salaries and pensions

CPI or RPI

Pension scheme has to be protected againsthigh inflation

In unlikely event inflation goes above 8%adjustments will be capped at that level

Inflation Cap

Current accrual rate 1/80

Savings if rate reduced to 1/85 or 1/90

This means if you pay the same contributions for

the same period of time, you finish with a smaller pension

orif you want the same size pension, you have to work longer

Faster or slower

Working longer

If at 1/80 it takes 10 years to build pension X at 1/85 it takes 10 years 8 months at 1/90 it takes 11 years 3 months

Some people are working longer anyway

No compulsory retirement age

Faster or slower

No appetite for large increases in employee contributions

Some members prepared to pay a little more to retain better benefits

Others cannot afford more, or might join the scheme if contributions were lower

Suggests a flexible approach

Higher or Lower

One savings option is to reduce benefits paid to

family on your death

Dependants pensioncurrently 2/3rd; could be reduced to 1/2

Death in service lump sumcurrently 4x salary; could be reduced to 3x

Would allow more flexibility in employee contributions and accrual rates

But depends on the value you place on these benefits

Insurance benefits

Pension age 65 then State Pension Age

No upper age limit to joining

Late pension benefits

Flexible retirement

Other changes

Brought all this together to propose two packages

Both have

CARE

RPI

Inflation cap

Annual choice of cost plan

Packages

Members choose between three cost plans

Insurance benefits are reduced

Package A

Cost plan

Employee contribution

Accrual rate

Change in weekly

cost

Lower 5.6% 1/90 £2.88 less

Standard 6.6% 1/85 £0.96 more

Higher 7.8% 1/80 £5.58 more

Flexible option

Includes an employee contribution rate lower than now

Offers possibility of keeping same accrual rate as now

But only possible by reducing insurance benefits

Package A

Members choose between two cost plans

Insurance benefits are kept at current levels

Package B

Cost plan

Employee contribution

Accrual rate

Change in weekly

cost

Standard 6.5% 1/90 £0.58 more

Higher 7.5% 1/85 £4.42 more

Less choice

No cheaper option

No possibility to pay for same accrual rate as now

But insurance benefits are maintained at current levels

Package B

More past service, less the effect of changes

CARE will impact more if you expect significant promotion

Both packages make savings by slowing accrual rate

but how long would it take to ‘catch up’?

Both packages ask you to pay more for the standard package

but how much do I want to pay for a good pension?

Worse off – how much?

Left options open so we can take account of your views

Now: Feedback at meetings

Email or letter Unions

May: Questionnaire

Your views

Questions

&

Comments