Pensions briefing August 2011 Chris Wood Unison NHS Professionals Branch

Why does the Government propose changes to public sector pensions? Danny Alexander “…We are all living longer. That means more years spent in work, as well as in retirement. To keep the best pensions in the country, public sector workers will have to contribute more. When they do reach retirement age, the pension they receive will be broadly as generous for low and middle income earners as it is now. At the same time, we are protecting the pension that has been earned to date.”

We are all living longer Lord Hutton: “A male pensioner in the NHS scheme who retired at 60 today is expected to spend 41 per cent of their adult life in retirement compared to 28 per cent if they retired in This means the value of a public service pension in is expected to be around a third higher than it would have been if assumptions about life expectancy were the same as those in 1955.”

“We are protecting the pension that has been earned to date” Change from RPI to CPI, average cut of 0.75% per year, 15% in overall value of benefits (Lord Hutton). Cut of 13% on average for every 20 years that a pension is deferred or paid. Pensions earned to date look likely to be deferred from 2015 under existing proposals. Pensions earned to date are being cut.

Are public sector pensions affordable? NHS employers fact sheet on the 2008 pension scheme reforms: “Changes to the pension scheme mean that the employers’ contribution, which is paid by the taxpayer, is now capped so that taxpayers’ liability in the long-term has been limited. Every four years, the employee contribution will be re- evaluated to ensure the rates and benefits structure is adequately funded by members of the scheme.”

Pension costs to fall and stabilise Lord Hutton, Interim report: “All these past reforms, the current pay freeze and planned workforce reductions will reduce the future cost of pensions. The gross cost of paying unfunded public service pensions is expected to fall from 1.9 per cent of GDP in to 1.4 per cent of GDP by 2060 as the central projection”.

What % of GDP is affordable? Public Accounts Committee: “officials appeared to define affordability on the basis of public perception”. At present, no clarity from Government on what it considers affordable, no evidence of a “black hole” in public sector pensions that needs urgent action.

Andrew Lansley’s views Reforms “inappropriate” and “unrealistic”. The changes would hit women health workers particularly hard, and do not meet the coalition’s “commitment to maintain gold-standard pensions”. “In the NHS currently, the average full time career for those taking a pension is only 18 years and it seems unrealistic to suggest that pension scheme design should be based on the assumption that a predominantly female workforce would need to work full-time, 48-year careers in future to receive a full pension”

18 July exchange of letters: Danny Alexander Contribution increases in some schemes anticipated for 2012 (under 2008 reforms). Spending Review – pension schemes to save £1.2bn across unfunded schemes (i.e. excluding LG schemes) in 2012/ ‘cap and share’ suspended. The long term reform introduced in 2008 has been suspended before its implementation, replaced by Government spending cut targets

Danny Alexander on affordability Government to set cost ceiling “to ensure that public service pensions remain affordable and sustainable” by October This will replace ‘cap and share’ agreed for the 2008 reforms and will determine contribution rates. Government wants to introduce Hutton recommendations on CARE scheme with normal pension age linked to State Pension Age.

TUC, Unison response The TUC has made clear to the government, in agreeing to continue negotiations, that unions have not agreed to or accepted any of the government's objectives or the change in indexation from RPI to CPI. Dave Prentis: "Our aim is to get a final offer so that members can see whether or not their pension schemes will be maintained or reduced. We expect these talks to be serious and any proposed changes must be based on clear evidence and not simply an excuse to find money to pay off the country's financial deficit.”

Unison next steps "The TUC will be co-ordinating the timetable and the talks will take place over the coming months and are scheduled to conclude by the end of October. "In the meantime, we are accelerating our planning of future industrial action strategy so that we can move quickly and effectively, should those talks fail."

DH launches consultation (28 th July) NHS Pension Scheme proposed increased employee contributions in 2012/13 (does not include proposed increases for 2013/14 or 2014/15) Net of tax relief increases from no change for lower paid up to 1.4%, staff on £25,000 = 0.5%; £40,000 = 1.0% (see consultation document for details). This is in addition to the impact of the two year pay freeze.

The consultation On how Spending Review savings by increasing employee contributions to the NHS Pension Scheme should be delivered. Repeats Government “clear commitment” to protecting earned benefits. Worked examples don’t include erosion of benefits due to CPI indexation. Consultation closes 21 October 2011.

BMA, FDA reaction to BBC on consultation BMA: “This is just a blatant tax on pensions. As far as we know, this money is not going back into any pension scheme, it is going to the Treasury.” FDA (First Division Association): plans “completely unjustified”. “These negotiations will be complex and difficult. However, if we are not able to reach agreement then industrial action is possible.”