Date posted: 01/06/2007


  • HR Managers and policy teams;
  • Payroll managers


  • Note the forthcoming changes
  • Issue Office Notice and Q&A (insert details at end of Office Notice of how staff can obtain Q&A material locally e.g. give intranet link)
  •  Record added pension contributions made by members over age 60 in new Added Pension Contributions field on payroll

Timing: Issue Office Notice as soon as possible. Changes effective 1 October 2007 and 1 March 2008.

  1. When we announced plans for reform of the Civil Service pension arrangements in January (see EPN158), we indicated that we would be bringing forward proposals for further flexibilities for current scheme members, subject to agreement with the Council of Civil Service Unions (CCSU). We have now given the CCSU details of the full package of change, including changes which will affect existing staff. We understand that some unions will be balloting their members on the pension reform package; while the main changes are for new entrants, existing staff are likely to take a closer interest in the elements which affect them. It is important that we ensure that staff understand that the changes are generally beneficial for them.
  2. Please arrange to issue the Office Notice at Annex A and Q & A as soon as possible.
  3. We propose to introduce the changes in two tranches; 1 October 2007 and 1 March 2008.

1 October 2007

  • members whose last day of service is on or after 1 October 2007 will, on drawing their pension, be able to take a larger cash lump sum tax free (subject to new tax limits); and
  • members who are over 60 will be able to buy added pension.

1 March 2008

  • we will increase the service limit in all schemes to 45 years
  • we will introduce “flexible retirement”. This will allow members, who agree new working arrangements with their employer which result in a reduction in their pensionable earnings of at least 20%, to draw all or some of their pension and carry on working
  • all members will be able to buy added pension
  • members will no longer be able to take out new Added Years contracts (other than classic members who may commit, before 1 March 2008, to a new Added Years contract starting from their next birthday provided this falls before 1 January 2009). Members can also carry on with existing contracts.

New maximum cash lump sums

  1. The proposed new limits are as follows and are nearly double the current ones: premium: maximum lump sum = pension x 30 / 7 classic: maximum additional lump sum = pension x 33 / 14 (this will be on top of the automatic lump sum of 3 x initial pension)

Example: Ruth is retiring from classic. Ruth has a pension entitlement of £10,000 a year plus a lump sum entitlement of £30,000. Ruth can, if she wishes, take an additional lump sum up to a maximum of £10,000 x 33/14 =£23,571. If Ruth opts to take an additional £12,000 lump sum, her pension will be reduced by £1,000 a year.

So Ruth will end up with a tax-free lump sum of £42,000 and an annual pension of £9,000 a year.

  1. Where members choose to take a lump sum (or, in the case of classic members, a higher lump sum), they will give up £1 of annual pension for every £12 of lump sum. This is the same exchange (or “commutation”) rate as is currently used in premium and classic plus. There is generally no impact on dependants’ pensions as these are based on pension before commutation. However, a higher lump sum will impact on the “death after retirement” guarantee for classic members. This is because the guarantee is for 5 x their pension less any pension and lump sums taken, so if the member takes a higher lump sum this will reduce (or extinguish) any potential lump sum payment on death within 2 years of retirement. Members will also need to bear in mind, in making their decision, that, under the tax rules on pensions, dependants’ pensions (in total) in respect of members who are over 75 when they die, cannot exceed the member’s pension at the date of death. As a higher lump sum reduces the member’s pension, this may be an issue for some people (depending on personal circumstances).
  2. The abatement rules will be amended so as to apply consistently regardless of how much lump sum members choose to take. The pension used for abatement purposes will assume that members take lump sums equivalent to the maximum available under the current rules (so that members who choose to commute more and thus have a lower pension under the new limits do not get treated any more favourably under the abatement arrangements).

Added Pension

  1. The current method of members topping-up their pension within their scheme is the purchase of Added Years. Added Years contracts involve an ongoing commitment to pay a set percentage of pay until pension age (currently 60 for most). This contribution (which increases with pay) buys a specified number of years and days of pensionable service. The contribution rates vary with age at the date of taking out the contract. Because Added Years contracts stop at 60, there are currently no facilities for those over 60 to top up their pension benefits within the scheme.
  2. From 1 October 2007, anyone in classic, classic plus or premium, and who is over 60, will be able to buy added pension. Instead of buying additional years to increase their pension, they will be able to buy specific amounts of additional pension. This will increase in line with the Retail Prices Index (RPI) each year – both before they retire and also when in payment.
  3. Members will be able to buy added pension by:
  • periodical contributions from pay (subject to a minimum monthly contribution of £10), and/or
  • lump sum contribution (not permitted in the first 12 months of service. After that, a maximum of one lump sum contribution is allowed per year – minimum £100).
  1. Added Pension bought will reflect the benefit structure in the member’s main scheme. So, someone purchasing £200 a year added pension in classic will also purchase an automatic lump sum of £600 and a widow(er)/civil partner pension of £100 a year. Single people will not, however, have rights to a partial refund of contributions on retirement (as they are with their main scheme contributions) and they will need to take this into account in deciding whether or not to buy added pension. Also by way of example, someone buying £800 a year added pension in premium or classic plus will have rights to give up pension for lump sum on retirement and will purchase a widow(er)/partner pension for life of £300 a year.
  2. The cost of added pension will be based on scheme-specific factors that vary according to the member’s age and will be reviewed at future actuarial valuations. Members will be able to get an indication of how much they can afford using a calculator that will be on the CSP website. They will be able to get an estimate of how much a particular amount of added pension will cost them as a one-off lump sum or by periodical contributions over a specified number of years. Alternatively they can specify how much they wish to pay and get an estimate of how much it will buy for them.
  3. Members can buy added pension up to a maximum amount of £5,000 pension a year in premium or classic plus, or £4,000 pension a year (plus lump sum of £12,000) in classic. (This limit applies across public service schemes and will increase with RPI in April each year). The only other restriction is that a person’s total pension contributions in any year (i.e. main scheme, Added Years, added pension, AVCs and any external pension contributions) cannot exceed a member’s pay (or £3,600 if more).
  4. Members will normally only be able to purchase added pension by periodical contributions with effect from the beginning of a scheme year (April). Members who are 60 (or older) on 1 October 2007 will, exceptionally, be able to contribute for the half year from October 2007 to March 2008. Applications arriving at APACs too late for the October payroll will therefore result in arrears of contributions being deducted in a following month. Lump sum contributions may suit better those who want to contribute before March 2008 but have not made decisions about exactly what they want to do before October 2007. Application forms will be available from APACs, and a leaflet will be on our website under publications, rules and forms.
  5. EPN159 set out changes required to payrolls as a result of reform of the Civil Service pension arrangements. These included the introduction of new Added Pension Contribution fields. APACs will pass details to employers of options made by members over age 60 to buy added pension. Employers should then use the new Added Pension Contribution fields to transmit data to their APAC of contributions actually made.
  6. Annual benefit statements will include details of added pension bought up to the statement date but will not make projections in respect of future purchases.
  7. We will be introducing added pension for all scheme members from March 2008, after which date members will not be able to take out new Added Years contracts (other than classic members who may commit, before 1 March 2008, to a new Added Years contract starting from their next birthday provided this falls before 1 January 2009). Members can also carry on with existing contracts. We will provide you with a detailed Office Notice on this issue later in the year.

Service limits

  1. At present, reckonable service is limited to 40 years in premium and in classic plus. In classic, the limit is 40 years at pension age, with the ability to build up a further 5 years after pension age.
  2. We propose to increase the service limit to 45 years for all from 1 March 2008. Members who are capped at 40 years’ service at that date will be able to build up further service from 1 March 2008 but will not, retrospectively, have the current cap lifted.


George reaches 40 years’ service on 30 September 2007. George retires on 31 December 2008. George would have expected his pension to be based on 40 years’ service but it will now be based on 40 years and 10 months’ service as the period from 1 March 2008 to 31 December 2008 will also count as reckonable service.

Flexible retirement (also known as phased retirement or partial retirement)

  1. At present, members cannot normally draw pension and carry on working except where they retire and are subsequently re-employed. From 1 March 2008, we propose to introduce “flexible retirement” arrangements. The flexible retirement arrangements will allow members, who “downshift” so that their pensionable earnings reduce by at least 20%, to draw some or all of their pension and carry on working. This flexibility is intended to facilitate a gradual move from full-time work to full-time retirement and to give employers scope to retain skills in the workforce whilst also making space to bring other staff on.
  2. Please note that, while employees who are confirmed as meeting the scheme conditions for flexible retirement will have the right to take pension under the flexible retirement arrangements, they will not have the right to demand changes to their job (changes to hours or job weight) that will facilitate this. Colleagues in Cabinet Office will issue further guidance on this issue and it is likely that departmental trades unions will wish to discuss the approach to be taken by individual employers.
  3. Employees who wish to take advantage of flexible retirement will need to bear the following in mind:
  • they cannot take their pension benefits before age 50 (age 55 if they joined on or after 6 April 2006)
  • benefits taken before pension age will be reduced for early payment
  • abatement will apply where benefits in payment plus pay exceed pay before downshifting
  • flexible retirement will reduce a member’s years of reckonable service for subsequent benefits
  • the facility to draw pension on downshifting will only be available to those who downshift on or after 1 March 2008
  • members can only take flexible retirement if they and their employer expect their downshifting to be permanent. If, exceptionally, their pay increases significantly in the future, their pension will be subject to abatement.


Beth is 61 and agrees with her employer to move from full-time working to 3 days per week. Beth’s full-time salary is £20,000 and her part-time salary will be £12,000. Beth has built up an annual pension of £10,000 (based on 40 years) in classic but Beth realises that any pension drawn over £8,000 a year will be abated (because pension drawn plus pay would then be more than pay before downshifting). Because she is over pension age, she can draw pension without it being reduced for early payment. Beth decides to draw £8,000 pension a year (and a lump sum of £24,000), which represents 32 years’ service.

Beth has 8 years’ reckonable service left and this, combined with her reckonable service in her part-time job, will build up further pension and lump sum in classic, which Beth will take when she finally retires.

  1. Where employers currently operate arrangements whereby members can retire, draw their pension, be immediately re-employed without a break, and remain in their current pension scheme (for example, some employers still offer “formal retirement”), these may continue until 1 March 2008. However, from that date, where a member draws benefits but does not meet the flexible retirement conditions set out above, they will be treated as a rejoiner (as described in EPN172 (Rev)) and will not be eligible to remain in their current scheme as an active member. They will, instead, build up further benefits (if eligible) in nuvos with a pension age of 65. The only exception to this is that “formal retirement” arrangements may continue for “pre-Fresh Start” prison officers.


This document refers to EPNs 158, 159 and 172


Enquiries about content, distribution or to receive in a different format
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1 June 2007
Last updated:
24 April 2023