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Education Pensions Speedbrief - Public sector pension reform: Government agrees with unions(?)

  • United Kingdom
  • Education - Briefings

21-12-2011

On 20 December 2011 the Government announced that headline agreements had been reached with most unions on public service pension reform.  The Government has been in negotiations with public sector unions after it accepted the recommendations of the Independent Public Service Pensions Commission chaired by Lord Hutton which published its final report in March 2011.

The Government also announced that the Fair Deal policy on the outsourcing of public sector staff will be retained. This speedbrief considers the Government’s announcements.

Public sector pensions reform: a quick reminder

The Government was concerned to ensure that public sector pension schemes, including the LGPS, are sustainable and affordable in the long term, fair to both the public sector workforce and the tax payer and consistent with the fiscal challenges ahead, whilst protecting accrued rights.  To that end Lord Hutton was appointed to chair the Independent Public Service Pension Commission.  The Commission reported in March 2011 and the Government accepted its recommendations.  Although one of the Commission’s main recommendations was that public sector pension schemes provide future service benefits on a career average revalued earnings basis (CARE), the Commission left the detail of the new schemes to be determined by the Government after negotiation with the unions.

The Commission found that the Fair Deal policy created a barrier to public service outsourcing.  As a result in March 2011 the Government launched a consultation on whether or not the Fair Deal policy should be abolished.  Fair Deal applies where a public service is outsourced to be delivered by an independent provider, including private sector businesses and non-profit making organisations such as charitable bodies and social enterprises. It requires that the new employer provides a ‘broadly comparable’ pension scheme for the transferred staff and bulk transfer arrangements for those staff who wish to transfer their public service pension benefits or, in the case of the LGPS, admitted body status for the new employer in the LGPS.

LGPS reform: Government’s announcement

In the House of Commons, Danny Alexander, chief secretary to the Treasury, told MPs that the Government has concluded Head of Terms on pensions reform across the public sector, including the LGPS. However, not all public sector unions have signed up to the deal, in particular the Public and Commercial Services union.

Danny Alexander reported that in relation to the LGPS further discussions will take place over the next three months to agree the final details. A Ministerial Statement issued by Eric Pickles, Secretary of State for Communities and Local Government, provided further detail on the LGPS specific Heads of Agreement setting out the principles governing the scheme design, ongoing cost management and governance of the new LGPS to be introduced in 2014. The core principles are:

  • a single solution to both the short and long term issues by the early introduction of the new Scheme in April 2014, with regulations in place by April 2013;
  • the single solution to be built on the basis of career average earnings;
  • can include zero increases in employee contributions for all, or the vast majority of members, provided that overall financial constraints set by the Government are met;
  • some elements of choice to encourage retention of existing membership and encourage new membership; and
  • flexible retirement age built around the Scheme’s normal retirement age equal to the State Pension Age or age 65, whichever is later, and applies both to active members and deferred members (new scheme service only). If a member’s State Pension Age rises, then normal pension age will do so too for all post 2015 service.

Further work on these agreed principles will commence in the New Year under the supervision of a newly appointed Project Board representing key LGPS partners.

This agreement includes a commitment to suspend any further industrial action while the final details are resolved and unions are consulting their members.

However, further controversy ensued when a letter was then issued by Mr Pickles which apparently contained new conditions not contained in the LGPS Heads of Agreement, in particular a cap on employer contributions. This resulted in some trade unions threatening to withdraw their agreement to the Heads of Agreement. It has subsequently been reported that Mr Pickles’ letter has been “withdrawn” and we understand that further discussions are now taking place.

Other Schemes

Different agreements have been reached in relation to the different public service pension schemes. By way of a high level summary:

Principal Civil Service Pension Scheme – This will move to a CARE basis with an accrual rate of 1/44th and revaluation based on CPI. For future service, normal pension age will be linked to the state pension age as it rises.

NHS Pension Scheme – This will move to a CARE basis with an accrual rate of 1/54th and revaluation based on CPI + 1.5% for active members and CPI for deferred members. For future service, normal pension age will be linked to the state pension age as it rises.

Teachers’ Pension Scheme – This will move to a CARE basis with an accrual rate of 1/57th and revaluation based on CPI + 1.6% for active members and CPI for deferred members. For future service, normal pension age will be linked to the state pension age as it rises.

Discussions on police, armed forces, judiciary and firefighters’ schemes are a separate process and proposals will be brought forward in due course.

Fair Deal: Government’s announcement

Alongside the announcement about the shape of the new LGPS, the Government announced that Fair Deal would be retained.  Whilst the Government will publish its response to the Fair Deal consultation in the New Year, Francis Maude (Minister for the Cabinet Office) stated that the decision to retain Fair Deal was made possible because of the agreement reached on the wider public sector pensions reform.

Comment

After the public sector strikes on 30 November 2011, the apparent agreement on the LGPS Heads of Agreement looked to be a significant step forward for the new LGPS. However, the subsequent letter issued by Mr Pickles has left the position in a state of confusion. We are now waiting to see if a revised letter will be issued in a bid to save the LGPS Heads of Agreement. If so, we await the further details of the new LGPS in early 2012.

We also look forward to seeing the Government response to the Fair Deal Consultation.

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