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The Police Pension and its Nuances

Richard Beardsworth Pension Expert

By Richard Beardsworth.

Independent Financial Advisor

More Reading on Pensions...

We have come to value our police officers and all they do to keep us safe on a daily basis. To that end, the government established the police pension in 1987 to ensure all police officers had access to a comfortable retirement income at the conclusion of their careers. As with most of the public sector pensions of the day, the 1987 police pension was very generous in the guaranteed benefits it offered. Today's police pension is still generous, but it has changed considerably over the last 18 years.

The first implementation of the police pension was structured as a defined benefit scheme that calculated pension payments using a combination of pensionable earnings, pensionable years of service, and a specific accrual rate. It was a final salary scheme in the truest sense of the definition. Weekly pension payments were based on the final salary a police officer was earning at the time of his or her retirement or the date at which the individual chose to leave the scheme. So why have things changed?

By the turn of the 21st century, it became apparent that the generosity of the 1987 scheme would not be sustainable forever. Critics of the scheme also claimed it to be less than equitable in light of the fact that seniority disproportionately benefited those at the upper end of the salary structure.

The government implemented reforms that resulted in a new police pension being established in 2006. Over the next five years, the new scheme was observed and studied to help policy makers understand future implications. That led to consultation and the third implementation of the police pension in 2011, and yet a fourth plan that was implemented in April 2015.

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Understanding Your Police Pension Benefits

The differences in the four different implementations of the police pension system are far too difficult and complex to offer a detailed explanation in a guide of this nature. We will not even attempt to do so. Rather, we will focus on some of the finer points of the police pension that every police officer should know. It is up to individual officers to contact pension administrators for more information about the plans they are enrolled in and what those plans mean for their future.

The first thing police officers need to know is the difference between the old final salary scheme and the new Career Average Revalued Earnings (CARE) scheme under which the police pension now exists. CARE is a very different animal when it comes to determining how much weekly pension payments will be. Consider the following:

  • Final Salary – A final salary scheme, as previously mentioned, is based on the salary a worker was earning at the time of retirement or scheme exit. This kind of pension pays a proportion of those earnings based on several different factors that are plugged into a mathematical formula.
  • CARE – A CARE pension scheme is different in that it pays a proportion of earnings earned over one's entire career. Different schemes determine pensionable earnings differently, so how the CARE model applies in your case depends on the guidelines of the police pension in which you participate.

The advantage of moving to the CARE model for the government is that of more stable pensionable earnings. By utilising total income earned over one's career rather than final salary, the government benefits in the fact that police officers earn less in the early stages of their careers as opposed to the last few years leading up to retirement.

The next thing police officers need to know is where they stand in terms of their current police pension participation. All officers originally enrolled in the 1987 plan will likely remain in that plan through retirement. Officers transitioned to the 2006 or 2011 plans will automatically be transitioned to the new 2015 plan unless certain protections apply in their individual contracts.

Forecasting Your Pension Payments

In light of reform, it is reasonable for police officers to want to know what they can expect from their pensions in retirement. Under the new system implemented in 2015, the following apply:

  • Normal pension age for police officers has increased to 60
  • New members whose salaries did not increase substantially throughout their careers will get proportionally better benefits due to more consistent income
  • The accrual rate under the new scheme is approximately 1/55 with a 1.25% re-evaluation rate based on inflation – accrual rates under the 1987 and 2006 plans were 1/60 and 1/70 respectively.

You should be able to contact your pensions administrator to get a fairly accurate forecast of your eventual pension payments based on averages. However, if you prefer to forecast by yourself, the government offers a police pension calculator free of charge. This calculator is set up as an interactive spreadsheet that requires you to answer some basic questions about your current income, years of service, projected retirement date, etc. It then calculates a number that should be reasonably accurate based on current conditions.

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Terms and Definitions

In your attempt to learn everything you possibly can about your police pension, you will run across some terms and conditions that probably do not make sense to you. Understanding them is essential to figuring out where you stand. Below is a list of the most commonly used terms you are likely to run into:

  • Pensionable Earnings – This is the amount of money you have earned throughout your career as a police officer that is eligible to be counted toward your pension. Typically, this includes normal salary and overtime. It does not usually include bonus pay and any other material benefits you might have received while working.
  • Pensionable Years – Also known as pensionable service, pensionable years are those years you spent working that can be applied toward your pension. For example, let's say you enjoyed a full 35 years as a police officer. For each of those years, you will get a certain portion of your pensionable earnings in retirement. The more years you have, the greater the improvements in pension payments will be.
  • Accrual Rate – The accrual rate is the rate at which your guaranteed pension benefits accumulated throughout your working career. The previously mentioned rate of 1/55 is a good example. This rate is multiplied by your pensionable earnings for every year of qualifying service as a police officer.
  • Scheme Exit – A decision on your part to leave your current police pension scheme in favour of putting your money elsewhere is known as scheme exit. This is rarely a wise thing to do with a generous public sector pension plan, so use caution if you are entertaining the possibility.

Despite all of the changes to the police pension since 1987, it remains one of the most generous public sector pensions in the UK. For example, your participation makes you eligible to receive tax relief on all of your contributions, just as members of private pensions receive. But you also pay a lower rate of National Insurance contributions compared to your private pension counterparts, effectively meaning you pay less over time for your state pension.

The police pension includes other additional benefits for both you and your family. Those benefits may include ill health benefits and payments that continue in the event of your death. There are so many advantages to the police pension that you should absolutely seek independent advice before exiting your plan.

For more information about how your police pension works and what it means for your retirement, consult with your pensions administrator and an independent financial advisor. Both will be able to answer any questions you might have about this very generous public sector pension plan.

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