Guernsey Public Sector Pension Scheme proposals

Purpose To explain the basis of current pension arrangements and terminology To outline the Guernsey States proposals for public sector pensions To compare / contrast with UK developments To take and answer questions on the proposals Provide an opportunity for members to take a view on the acceptability, or not of the proposals.

Pension terminology (1) State Pension Age (SPA) the age at which someone can get their ‘state pension’ Normal Pension Age (NPA) the age at which you can access an unreduced pension from your occupational pension scheme Minimum Pension Age (MPA) the age at which you can access a pension MPA not include ill health etc – just deals with taking a normal pension -= normally this is either 50 or 55. Set in statute and HMRC etc NPA relates to occupational schemes – SPA is the ‘old age pension’ You could have three pension ages and all mean something different so a nurse could; Have an MPA of 55 A NPA in the Guernsey scheme of 60 and SPA of 65

Pension terminology (2) Defined Benefit schemes (DB) – such as ‘final salary’ and CARE. Pension benefits are defined by the rules of the scheme and must be paid irrespective of the position of the pension fund. Final Salary - pension is calculated on either the last year of earnings or over a few years prior to retirement. CARE – each year of pension contributions (and not solely the final year(s))is calculated for pension purposes. UK public sector schemes moving to CARE. Defined Contribution (DC) or ‘money purchase’. Pension is dependent upon growth of a ‘pension pot’ . Pension pot is based on contributions from employer and employee – return is not guaranteed Lord Huttons review of public sector pension in UK was clear that final salary schemes should close. He saw them as delivering a disproportionate benefit to higher earners at the expense of the lower paid. Care is ‘fairer’ to all and everyone builds up the same level of benefits in care and there is no higher earner / final salary effect. Final salary is not always someones highest earnings All UK scheme moving to care over a period. GPs have always had CARE and NUOVOS civil service went to CARE in 2008 NHS TUs have never been against CARE just that they were able to negotiate final salary in 2008. If not it would have been CARE Nurses generally have a flat career earnings so CARE should not deliver worse benefits. But with Rising NPA they may have to work longer

Pension terminology (3) ‘Accrual’ – the rate that a pension builds up at, so 1/80th = 1/80th of pensionable pay for each year of pensionable service; Example - £30,000 / 80 x 20 years = £375x20 years = pension of £7,500 ‘Funded schemes’ – ‘unfunded schemes’ –’pay as you go’ – How schemes are funded. Guernsey is a ‘funded scheme’ with real assets and liabilities. NHS is ‘unfunded’ – no ‘pension pot’ but accounted for as if real. Pensions paid out of revenue.

Current arrangements (Nurses) Pre-2008 NPA60 (some members with NPA 55) 1/80th Final salary plus lump sum 6.5% employee 14.1% employer 45 yrs max RPI Post 2008 NPA65 1/60th Final salary no lump sum 6.5% employee 14.1% employer 45 yrs max RPIX So States have already agreed to people (new entrants) to work longer - 65

‘The politics’ UK Hutton Report –’ work longer , pay more get less’; close final salary introduce care, increase retirement age and pay more in pension contributions. Government (UK) should set a cap on the costs that they are prepared to incur Employers moving from final salary; see UK Public and private sector, Jersey etc Not just an ‘affordability issue’ – it’s also about ‘exposure to risk’ in the longer term Public sector v private sector provision on Guernsey ‘People living longer so receiving pension for longer’ – ‘work longer to deliver pension for longer in retirement’ Not just about if a ‘case for change has been made’ – TUs did not accept the case for change in the UK Guernsey – States do not want to continue to build up ‘final salary’ liabilities Guernsey politics? States meeting Feb 2014 Lord Hutton reviewed public sector pensions at request of Govt Close final salary Increase contributions Work longer No to DC system Protect final salary benefits at final salary Case for change not made in UK that was acceptable to TUs – TUs felt 2008 changes were affordable and shared the risk correctly between taxpayers and scheme members; TU negotiate defined benefit scheme if final salary is not available.

Guernsey process Original discussions 2012 - outcome not accepted by trade unions (ASEO) Further discussions 2013 and new proposals tabled – resulting in; Delayed implementation to Jan 2015 Increased protection from 5-10yrs Reduction in proposed employee contribution from 8% to 7.5% Phased increase in reduced contributions; 7% then 7.5% Guaranteed ‘floor’ on employer contribution Change to proposed pension increase cap in retirement from 5% to 6% with possibility of further review if over 7.5% Delayed implementation means that people build up another year in final salary benefits. More people covered by protection Pension in retirement rises better in Guernsey than uk Under previous proposal employer could pay less than employee – rejected by Tus now employer will never pay less than staff

Proposals in summary New scheme from Jan 2015 Close ‘final salary’ and introduce CARE in Jan 2015 for ‘future pension benefits’ Normal pension age (now 60/65) in CARE to equal state pension age – rising to 67 by 2031 Accrual 1/80th and 3/80th ‘lump sum’ Compulsory for new and part time staff Employee Contribution to rise to 7.5% by Jan 2016 Pension increases in service and in retirement at RPIX capped at 6% but with review Additional pension benefits can be purchased in DC arrangement Employer contribution rate 12% (max 14%) from14.1% No maximum service Earnimngs above £85k to be in DC scheme

‘Protections’ and interim arrangements Start date put back from 2014 to 2015 Members within ten years of their normal pension age as at 31/12/13 (increased from original 5 years) will have their normal pension age (55, 60 or 65) protected Final salary benefits earned to Jan 2015 will be based on final salary at retirement and not as at 2015. Phased increase in contributions: 7% from Jan 2015 and 7.5% from Jan 2016 ‘Uniformed services’ SPA minus seven paid for by increased contributions Protection is of age only and not benefits ie everyone moves to CARE in 2016

The UK NHS Public sector final salary schemes closing and CARE being introduced. Public Sector Pension Act does not allow final salary schemes to be negotiated in future. Protection is on both retirement age and scheme membership : full protection and tiered protection Retirement in CARE to equal state pension age Contributions increased in 2008 to an average of 9.8% - average nurse will pay about 9.3% - could rise further Employer contribution 14% Increases in retirement capped at CPI (was RPI) NHS CARE accrual 1/54th but no lump sum Working Longer Review Introduction of cost / risk sharing arrangements Most unions in UK rejected proposals but rcn 16% turnout and unison 15% turnout problematical UK two levels of protection Within ten years of NPS in April 2012=- full protection ie remain in scheme until choose to retire but subject to any contribution increase Tapered those between 10 and 13.5 years – remain in current scheme for up to 9.5 years for some (others less) then move to 2015 CARE section

How it will work…. For consideration by States in February and if passed as proposed.. Someone retiring before Jan 2015 no change After Jan 2015 all future service will be at CARE All service to 2015 protected on a final salary basis and final salary link remains for this service Those within 10 years of NPA in Dec 2013 will retain their pension age so can retire at that point or later without a reduction in benefits.

Finally… RCN view is that the proposals are ‘the best that can be achieved through negotiation’ Rejection means serious consideration of industrial action – what are members prepared to do about it? Members are asked to give a view in RCN ballot

Discussion / feedback Views Strength of member feeling Acceptability or not If rejection – what next?