Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS ©

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS © INDEPENDENT PUBLIC SERVICE PENSIONS COMMISSION  The Commission published its Final Report on 10 March 2011  In its report The Commission suggested to Government that the reforms proposed should, as a whole, deliver a framework for public sector pensions that is both affordable and sustainable, adequate and fair, supports productivity and is transparent and simple  The Commission submitted 27 recommendations to Government  Government accepted these recommendations (2011 Budget Statement) ‘as a basis for consultation with public sectors workers, trades unions and others...’

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS ©  Pensions should continue to form part of a total reward package (Recommendation 2)  Public sector workers should receive an adequate level of retirement income (Recommendation 3)  Whilst not proposing a single public service pensions scheme, over time schemes should move towards a common framework (Recommendation 13)……  within which a single benefit design should apply across the whole income range (Recommendation 9a)…… IPSPC - RECOMMENDATIONS

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS ©  incorporating tiered contribution rates to recognise the differing characteristics of higher and lower earners (Recommendation 9b)  Government has already indicated (Comprehensive Spending Review - October 2010) that it wants contribution levels to rise.  Members could be paying as much as 9.8% - more than 53% increase in contributions. For teachers this would represent an increase of 3.4%. which on a salary of £50,000 that represents an extra £1700 per annum / £142 per month  Government has further indicated that the increases should be introduced with effect from April possibly being phased in over a 3 year period IPSPC - RECOMMENDATIONS

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS ©  The final salary link for past service for current members should be maintained (Recommendation 4) IPSPC - RECOMMENDATIONS  A new career average re-valued earnings (CARE) scheme should be adopted for general use in the public sector schemes (Recommendation 7)

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS ©  The Commission stated that the protection of accrued rights must be a pre-requisite for reform both to build trust and confidence and to protect current workers from a sudden change in the pension benefits or pension age (Recommendation 4)  The Commission recommended that the Government must honour in full the pension promises that have been accrued by scheme members (Recommendation 4) IPSPC - RECOMMENDATIONS  Normal Pension Age should reflect the State Pension Age and be reviewed regularly (Recommendation 11)

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS ©  The abatement provision in its present form should be removed (Recommendation 10)  Flexible retirement should be encouraged so as to enable individuals to choose to retire earlier or later than their normal pension age with benefits adjusted accordingly on an actuarially fair basis (Recommendation 10)  Every public sector scheme should have a properly constituted, trained and competent Pensions Board, with member nominees (Recommendation 17a)…..  plus a pensions policy group at national level, for considering major changes to scheme rules (Recommendation 17b) IPSPC - RECOMMENDATIONS

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS © NAHT’s response to the Commission’s recommendations: 1. We welcome the rock solid assurance that accrued rights are protected. 2. We have not seen evidence that the current scheme is unaffordable. We already pay substantial contributions and share the risk. 3. The pension is an integral part of the fair reward for a demanding and vital job. 4. Members are united in rejecting moves away from final salary. It is seen as a betrayal. 5. The real risk is to the younger leaders. At a time of rising targets, falling budgets and greater scrutiny, what is, in effect, a pay cut, will put potential school leaders off the job - leading to a crisis in recruitment and therefore damage to education.

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS © INDEXATION From April 2011 the Government imposed a change to the indexation of pensions from RPI to CPI. Although the change is not retrospective it will result in huge losses in retirement income (both state and occupational pensions) for both those currently in receipt of a pension and future pensioners.

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS © WHAT HAPPENS NEXT?  Await the Government’s publication of proposals - due in the early Autumn of 2011  At present Government and TUC (including representatives of affiliated public sector unions) are engaged in a series of meetings that will determine the framework within which each scheme, via its individual consultation processes, will consider potential change(s)  The Commission stressed that implementation is key: consultations on details should be conducted scheme by scheme involving employees and their representatives and should precede the statutory consultation process (Recommendation 25)  Timeframe - Hutton suggested change cannot happen overnight but should be implemented before the end of the current Parliament: May 2015 (Recommendation 26)

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS © WAS HUTTON REALLY NECESSARY? The Teachers’ Pension Schemes have a robust and well-trusted review process to which the Government, employer and teacher association representatives are members. The November 2006 agreement brought changes in  Increased employee contribution rates  Increased the NPA for new entrants to 65  Created a cost sharing and capping arrangement to control costs  Created immediate and long-term savings for Government The changes introduced in 2007 following major reviews of public sector pensions are working.....(National Audit Office: ‘The impact of the 2007 – 2008 changes to public sector pensions’ Dec 2010)

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS © Hutton is merely the hook on which the Government can hang its tools with which to worsen public sector pensions. Prior to the Commission’s final report Government had already made it mind up that public sector pensions were unaffordable claiming that they are: ‘unreformed gold-plated pension pots’ (Clegg ) and ‘the public sector pension bill is unsustainable and the Office for Budget Responsibility, this independent body we’ve created, has shown that ’ (George Osborne – ) WAS HUTTON REALLY NECESSARY?

Pension Update April 2011 REVIEW OF PUBLIC SERVICE PENSIONS © POTENTIALLY WHAT DOES IT MEAN FOR MEMBERS? At a time when there is a public sector pay freeze  Increase in contributions - up to 3.4% more which on a salary of £50,000 represents an extra £1700 per annum / £142 per month  Worsening of benefits if final salary arrangement is replaced by a career average scheme  Smaller increases in retirement incomes - CPI increases rather than RPI based  Working longer before drawing benefits – 66, 67 or later Work longer, pay more for less reward