Pensions update January 2012

Negotiations on the Future of Public Sector Pensions

The Government Offer – Changes in Public Sector Pensions from 2015


Since the last report, the Government tabled their “final offer”. The unions undertook to refer the matter to their decision making bodies.

To date there was been no general acceptance of this offer (though some individual unions have accepted it).

The offer may be summarised as:

1. Normal Pension Age would be the same as the State Retirement Age

2. The career average mechanism would be introduced

3. Pension accruing in relation to service after 2015 will be payable only at age 65 (NPA)

4. The career average accrual rate would be 1/57th of pensionable earnings

5. Optional lump sum commutation at rate of 12:1

6. Average contribution rate to be on a tiered basis at an average of 9.6%

7. New contribution rates to be phased in between April 2012 and April 2015

8. Employers contribution rate would be reduced from 14.9% to 12.1%

9. The revaluation rate for active members would be CPI + 1.6%

10. Pensions in payment would be revalued using the “Prices Index” (currently CPI)

11. Actuarially fair early/late retirement factors

12. Early retirement factors reduced to 3% per annum for period between ages 65 and 68

13. There will be transitional protection for older teachers as described below

There is much technical detail in the above. Members will be given further information when/if an agreement is reached on the detail of the Teachers’ Scheme.

The arrangements offered should be (according to the Government) sustainable without any significant amendment for 25 years. (This perhaps is an indication that the arrangements are generous on the employers' side.)

Areas for continuing discussion

It is accepted that areas for further discussion include

• Abatement and its removal

• Members who leave and rejoin the Scheme

• Phased Retirement

• Contribution rates post 2015

• Mechanisms to allow retiral before the Normal Pension Age

Transitional Protection

Transitional Arrangements Table

Those aged 50 on or before 1 April 2012

The Government has offered that those teachers in the NPA 60 Scheme who are aged 50 or over on 1 April 2012 will retain their existing pension arrangement.

In effect, those over the stated age will have their benefits payable at 60 under the current arrangements (final salary and 1/80th of salary per year of superannuated service).

They will therefore see no change to their pension arrangements as long as they retire at 60.

Those working beyond 60 will receive their pension in 2 parts. The NPA60 pension is payable on the date of their retirement and the pension accrued after their 60th birthday is only payable at 65.

Those aged between 46 and 7 months and 49 and 11 months on 1 April 2012

Those aged 49 and 11 months at the relevant date will have most of the protection offered to those over 50 on 1st April 2012. For every additional month the member is below age 50 on the relevant date, a further 2 months of protection is lost until those who are aged 46 and 6 months on the date will have no protection at all and all their benefits relating to service after 2015 will be payable as of right only at age 65. (The right to accept an actuarially reduced pension would remain.)

In general under the new Scheme pensions earned after 2015 would be payable only at the same age as the State Retirement Age. This will be at age 65 as of 2015.

Those younger than 46 and 7 months

For those teachers younger than 46 and 7 months on 1 April 2012 pension will be a combination of their accrued benefits up to April 2015 under a final salary scheme (payable on retirement from age 60) and their accrued benefits after 2015 under the proposed CARE scheme (payable at age 65).

The Association's Position

The whole matter has been kept under review by Executive and Council. The Association's view might be summarised as

• A total refusal to accept that NPA can exceed 65

• The tiered contribution mechanism is unwarranted if a career averaged mechanism is to be introduced.

• Rejection of the move from final salary to tiered contributions.

The Association remains of the view that the Government has not even attempted to prove that its “reforms” are necessary to meet the costs arising from increased longevity among members of the Scheme. It is perhaps significant that the Government seems absolutely determined to push through one particular proposal, the increase in the pensionable age to match the State Retirement Age. This is, of course, the one proposal which will have an effect on teacher longevity; in this case to decrease it.

The Government's demands are no more than a stealth tax on public sector workers' earnings. The Government remains committed to a strategy which avoids increasing the basic rate of income tax. It therefore disguises an increase in direct taxation by adding the tax to the earnings of public sector workers. An increase in the employee contribution rate from 6.4% to an average of 9.6% equates an increase in the basic rate of income tax of over 4% (because the increased rate is applied to all earnings without any income being untaxed).

Regardless of what the Government attempts to suggest with regard to the extent of the shortfall in the funding of public sector schemes, the Government has failed to produce the required evidence. This evidence has, up until the present, always been available via the “quinquennial review”. The review due now is “delayed”. The SSTA simply questions why.

Members are asked not to ask for further detail on the matter unless it is absolutely essential to forward planning. Further detail will be provided as matters develop. It is hugely helpful if any such questions are be sent by email.