Employees joining the public sector from April 2022 will be offered a choice of pension scheme to help them save for retirement.
They will be given the opportunity to join the current Defined Benefit schemes or a new Defined Contribution arrangement.
While Defined Benefit guarantees a level of pension income at the time of retirement, the benefits from a Defined Contribution scheme would depend on the amount paid in and the performance of investment funds.
Under a new Defined Contribution arrangement employee and employer contributions would be paid to the provider to invest on behalf of the employee. There would be no long-term liability for the Government to pay the pension and it would not be a statutory arrangement - it would instead be a contract directly between the employee and pension scheme provider.
Defined Contribution schemes are usually seen in the private sector, and provide employees with a more flexible and portable retirement fund should they ever change careers or circumstances.
A report on public sector pensions looked at range of options to manage future costs and to contain the legacy funding gap, which has built up over many years by the current schemes.
The report acknowledged that none of the options considered could provide a single solution to the issues around historic unfunded schemes. It was, however, recommended that public sector pensions should be expanded to offer employees a viable alternative.
It is hoped that introducing a Defined Contribution arrangement to new employees will begin a gradual transition to this style of more flexible pension, away from the more costly Defined Benefits schemes and in the very long-term reduce the burden on public finances.
