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Low-paid staff may end up with better pensions

Low-paid public workers could get bigger pensions under the proposed career-average scheme, according to analysts.

Hymans Robertson says many scheme members could receive a bigger pension at retirement if the Treasury decides to hold accrual rates but they will have to wait longer to receive it.

Head of public sector pensions John Wright says a career-average scheme would be fairer to people with low pay growth.

He says: “A career-average scheme will produce roughly the same pension for someone in a final-salary scheme whose salary grows in line with average earnings, for example, a nurse or a teacher.

“Career-average schemes are generally fairer to those with lower pay growth and broken service, whereas those with high pay growth do better out of final- salary schemes.”

KPMG head of pensions Andrew Cawley says the decision to link increases in pensions to average earnings throws “a huge lifeline” to the lower paid. He says: “By using average earnings as the peg, the very lowest may find their career-average schemes end up being better than the final-salary schemes they might have received as the point about averages is that some people are going to be less than average.”

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