The Pensions Arguments of Xmas Present - what has changed since early November?

This Xmas we have a series of “Heads of Agreement” to mull over as we munch on mince pies and regret eating sprouts. Following the publication of our ballot results on 3 November, and ahead of our strike on 30 November, UNISON published a very useful document dealing with Danny Alexander’s now notorious (at least to him) statement of 2 November.

Since this document explained what had and had not been changed by that statement, and (by clear implication) why we were right to press ahead with a strike against Government plans even after that statement, it is worth returning to that document and looking at what is now proposed (which our Service Group Executives are to consider on 10 January.

The UNISON document acknowledged the two changes made in the 2 November statement. The first of these was in relation to accrual rates in the new career average schemes, which would remain at 1/60^th rather than a less advantageous 1/65^th. In fact, as we have now seen, since the Government’s proposal was for an accrual rate of 1/60^th linked to a revaluation rate of CPI+2% (intended to reflect the increase in average earnings), the Government have been more than happy to concede what appear to be more generous accrual rates if these are linked to less favourable revaluation rates.

Although I do intend to return to this topic in greater detail after the festive season, for the moment I think the key thing to recognise is that a settlement which favours the accrual rate at the expense of the revaluation rate is closer to a final salary scheme, since it gives greater weight to later years in the career, whereas a settlement which keeps a higher revaluation rate at the expense of the accrual rate gives a relatively greater weight to earlier years in the career. I should imagine that an equality impact assessment could keep whatever the collective noun for statisticians is busy for quite a while…

The second change made on 2 November, and acknowledge in the UNISON document, was the protection of the retirement income for those within ten years’ of retirement, with tapered protection for those close to that limit. The UNISON document noted that it was then “not yet clear whether this would have to be paid for with further detrimental changes to other workers’ pension entitlements.” It is now clear, since all of the “Heads of Agreement” (with the exception of the local government, discussed further below) come in within the Government’s financial targets set on 2 November that this is precisely how that protection has been achieved. Having regard to the age profile of trade union (and pension scheme) membership, we may have served a significant proportion of our members well. I hope this won’t prove to have been at the expense of the future of our movement.

Given that we had acknowledged these two changes in advance of 30 November, they were not relevant to our (correct) decision to strike on N30. What was relevant were those things that had not changed at that point. Have they changed since?

Contribution increases

The UNISON document from early November correctly reported that, at that time, “as before, contributions will be increased for all pension scheme members earning over £15,000 a year by an average 3.2% (for part time workers this will apply if your full time equivalent salary is greater than £15,000), the lower paid will pay less than the average but many middle and higher paid will pay more. For the Local Government Pension Scheme ministers are currently consulting on proposals for contribution increases lower than the average 3% called for, by having a lower average contribution increase between 1% and 1.5% in exchange for a worse accrual rate than the standard 1/60^th”.

So what has changed?

Well, in the NHS scheme, protection from contribution increases in April 2012 have been extended to those earning up to £26,557 and, as the deal is explained on our website “in 2012 members will pay between 0 and 2.4% extra. Those with a pensionable salary of less than £26,557 will not pay any extra. This will apply to 48% of the NHS workforce and probably around 70% of UNISON members. There will be further discussions on contributions in years 2 and 3.”

Whilst it is true that the Government has conceded the possibility that they may think again about future contribution increases in the light of the experience of opt-outs, that appears to be a very small and unappetising carrot (something with which anyone who has spent the afternoon peeling root vegetable for a roast dinner will be most familiar!). This is so for two reasons.

First, the Government have not put any more money on the table and so (at least in the “pay as you go” schemes) it is clear that any reduction in employee contribution income will have to be made up somewhere else.

Secondly, the Government know that the trade unions will (quite rightly) do all we can to encourage our members not to opt out of occupational pension schemes which will continue to offer them a deal less awful than the appalling offer from the private sector.

As for the Local Government Pension Scheme (LGPS), here there has been a real shift in the Government’s position, since it is now acknowledged that there can be no contribution increase until at least April 2014, and accepted that, if the scheme can find alternative savings, there need not be contribution increases even from that date.

It is vitally important, in assessing this development, to understand the point made by Tory Wandsworth Council (of all people!) There never was any point (from the Government’s point of view) in trying to enforce contribution increases on LGPS members before April 2014, because there was no way of using such an increase to produce a countervailing reduction in employers’ contributions in order to siphon money out of their budgets towards deficit reduction in the short term.

Retirement Age

The UNISON document responding to the 2 November statement stated correctly that; “as before, anyone who won’t already be within 10 or 14 years of the current Normal Retirement Age (as explained above) will now face increases in their Retirement Age, rising in line with the State Pension Age, rising to 66, then 67, then 68.” That remains the case in each and every one of the “Heads of Agreement” – and, of course, the State Pension Age can be varied by the Government.

Although the LGPS proposals provide for “flexible retirement” between 55 and 75, this flexibility is constrained by the actuarial reductions which would apply to those retiring before their retirement age, which will be set in accordance with the state pension age. Therefore, there is no practical difference between any of the schemes on this point. If we accept the current proposals as the basis for negotiation we are accepting that we shall work longer.

Shift to Career Average Pensions

The UNISON document replying to what Danny Alexander had said on 2 November point out, rightly, that “as before, the Treasury’s preferred design for all schemes remains a Career Average Revalued Earnings scheme(CARE) where the pay used to calculate pension is an average of pay earned by an individual over their membership of the scheme. The Treasury is proposing that the earnings should be revalued in line with average earning increases up to retirement. This is different to the current Final Salary schemes where the pay used to calculate the pension is based on earnings near retirement.”

Although the Treasury has been happy to allow negotiators in each scheme to increase the accrual rate at the expense of the revaluation rate (shifting the eventual outcome marginally closer to final salary and away from career average) this has only been permitted within the overall cost ceilings set on 2 November. The LGPS is (now) excluded from this overall ceiling because the different nature of the regulation of this funded pension scheme (in which local authorities themselves are stakeholders) means that a Tory Government is no more able now to dictate outcomes than a Labour Government was in the last Parliament.

So, if we were to redraft the UNISON document responding to the 2 November statement in order to respond to the statement made on 20 December what would we say has changed?

Not the retirement age.

Not the future shape of the schemes.

The contribution increase in health is put off for a year for the lowest paid half of the workforce, and in local government for everyone for two years (plus in the LGPS the Government now accepts the limit of their power to dictate outcomes, which is clearly a good thing).

We have also preserved the Fair Deal (about which more later) which is, for those to whom it will apply, very certainly a good thing.

But is this good enough for us to give up the fight our members were so willing to fight on N30?

That is a question to be asked to, and answered by, our elected Service Group Executives (SGEs) on 10 January.