As members will be aware, there has been discussion between the TUC and Treasury on the issue of public sector pensions. Additionally, the Independent Public Sector Pensions Commission, chaired by Lord Hutton, reported in March this year. The Report contained much which would be attractive to the Government.
Current thinking on the two sides might be summarised as:-
For the Government:- the Exchequer canâ€™t (or wonâ€™t) continue to fund public sector pensions at the current level and needs to make radical changes.
For the Trade Unions:- the changes proposed are no more than a tax on public sector workers intended to reduce public borrowing and not warranted under any independent examination of the financial state of the various schemes. The Government has totally failed to produce the statistical evidence needed to prove its case.
- From some date in the future (the Government hopes in 2015) pension “earned” after that date will become payable only at either age 65 or at the state retirement age (whichever is the higher). Pension earned before this is “protected” i.e. payable under the current final salary arrangements (and based on the salary applicable at retirement).
- Instead of being based on final salary, pensions earned after some date (possibly the same date) will be based on a career averaged mechanism.
- Employee contribution rates will rise starting in 2012. Rates will be tiered according to salary. By 2014-15 the average rate would rise to 9.6% (50% above the current rate). The lowest rate would be 6.4% and the highest 12.4% (no state sector teachers in Scotland would be in this band).
Of the three significant proposals, the third is the subject of public consultation. The Association will respond, rejecting much of the case made by the Government for such rises.
The other two items remain under discussion but Government thinking on them is clear. It remains probable that the Government will attempt to impose all of the changes.
The Association's reaction to each of the significant issues could be summarised as follows:-
- The increase in pensionable age is totally unwarranted. The Government has no evidence as to the amount which would be saved under such a change most obviously because there is very little available data as to what mortality rates will be if teachers generally are required to work to age 65 (increasing to 68). It remains the Association's view that, until the Government produces data to the contrary, teacher mortality will show a downward trend (or, at least, no upward trend) if retirement ages increase. The Association has significant concerns over the number of young people who would be taught by teachers who are “burnt out” or simply lacking in their former enthusiasm.
- The career averaged (CARE) model favoured by the Government involves three significant parameters which will be used to calculate the retiring benefits.
(a) The accrual rate – this is the proportion of salary which determines the amount of pension “earned” in any year. (The Government has now suggested a figure which remains under discussion.)
(b) The revaluation rate used in order to maintain the value of previous pension earned.
(c) The rate at which pension can be converted to lump sum (a CARE mechanism produces pension only). The conversion rate currently favoured by the Government is 12:1. For every pound of annual pension surrendered, a lump sum of £12 is payable. The Associations view is that all evidence suggests a rate of 18:1 as being actuarially reasonable.
The Association view is that all three of these parameters will be subject to Government amendment at the stroke of a ministerial pen. Can this Government be trusted? Can future Governments be trusted?
- The Association will examine any case made by the Treasury for a general increase in contribution rates. This can only be done when the valuation of the scheme (which is overdue) becomes available. On this basis, it is reasonable to say that the currently proposed employee contribution rate increases are no more than mechanism to increase Government revenue during a period of fiscal difficulties.
On the basis of the above, the Association will ballot members on the possibility of industrial action (which might or might not include the possibility of strike action) at some date when the Government's proposals are clear or at some earlier date if the situation demands.
Members seeking further information are asked to email to our firstname.lastname@example.org address.