On December 2011, I reported to the House that a heads of agreement had been reached on a new NHS Pension Scheme for England and Wales for introduction in 2015. The heads of agreement set out the Government’s final position on the main elements of scheme design.

Following this, my Department has been engaged in detailed discussions with health sector trade unions and employer representatives over the remaining details for the new NHS pension scheme. I can now report to the House that these discussions have concluded and the outcome reflected in a proposed final agreement. The headline elements of the proposed final agreement remain unchanged from those set out in my previous statement to the House concerning pension reform on 20 December 2011.

The Government have made it clear that the proposed final agreement represents our final position on scheme design. The final scheme design is conditional on acceptance by trade unions of the proposed final agreement. Trade unions have agreed to take this proposed final agreement to their Executives as the outcome of negotiations. Furthermore, the proposed final agreement includes a commitment by trade unions to seek Executives’ agreement to the cessation of any further industrial action on pension reform.

The core parameters of the new scheme are set out below:

a. a pension scheme design based on a career average revalued earnings methodology;

b. an accrual rate of l/54th of pensionable earnings each year with no limit to pensionable service;

c. revaluation of active members’ benefits in line with the consumer price index plus 1.5% per annum;

d. a normal pension age equal to the state pension age, which applies both to active members and deferred members (new scheme service only). If a member’s state pension age rises, then their normal pension age will do so too for all post-2015 service. Those within 10 years of their current normal pension age are excluded and accrued rights will also be related to current normal pension age;

e. pensions in payment to increase in line with inflation (currently consumer price index);

f. benefits to increase in any period of deferment in line with inflation (currently consumer price index);

g. member contributions on a tiered basis to produce a total yield of 9.8% of total pensionable pay in the scheme;

h. optional lump sum commutation at a rate of £12 of lump sum for every £1 per annum of pension foregone up to the maximum limit on lump sums permitted by HM Revenue and Customs;

i. the current flexibilities in the 2008 section will be included in the 2015 scheme—early/late retirement factors on an actuarially neutral basis, draw down of pension on partial retirement and being able to retire and return to the pension scheme;

j. ill-health retirement pensions to be based on the current ill-health retirement arrangements but with enhancement for higher tier awards to be at the rate of 50% of prospective service to normal pension age;

k. spouse and partner pensions to continue to be based on an accrual rate of 1/160th. For deaths in retirement, spouse and partner pensions will remain based on pre-commuted pension;

l. the current arrangements for abatement (for service accrued before and after 2015) will be retained;

m. the lump sum on death in service will remain at twice actual pensionable pay;

n. for members who in the new scheme have a normal pension age higher than 65 there will be an option in the new scheme to pay additional contributions to reduce or, in some cases, remove any early retirement reduction that would apply if they retire before their normal pension age. Only reductions that would apply in respect of years after age 65 can be bought out and the maximum reduction that can be bought out is for three years (that would apply to a member with a normal pension age of 68 or higher);

o. added years contracts in the 1995 section will continue on compulsory transfer to the 2015 scheme;

p. arrangements to purchase additional pension will continue;

q. the public sector transfer club will continue and further consideration will be given to the best way of operating it in the reformed schemes; and

r. there will be an employer contribution cap.

The Government Actuary’s Department (GAD) has confirmed that this scheme design does not exceed the cost ceiling set by the Government on 2 November 2011. The proposed final agreement and GAD verification have been placed in the Library. Copies are available to hon. Members from the Vote Office and to noble Lords from the Printed Paper Office. The documents are also available at:

www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/@dh/@en/documents/digitalasset/dh_133003.pdf