1. Pensions update 22 Nov 2011 Chris Wood UNISON Pensions Champion

2. What’s new? New Government proposals on the career average (CARE) scheme originally put forward in Hutton report Proposals have some positive features in response to firm line taken by trade unions. BUT many of the key cuts to pensions stay in place I will recap on the pension cuts and look at the new proposals

3. Summary of the cuts Get less: RPI to CPI indexation, cut of 0.75% per year on average. Cut of 13% on annual pension after 20 years. Pay more: overall increase in contributions from 6.6% to 9.8% of salary (about 50% more). Extra money goes to Treasury not to pension payments. Work longer: increase in retirement age, up to 68 in new pension schemes. Removal of pension protection if job privatised.

4. Pensions have already been reformed 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.”

5. 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 2010-11 to 1.4 per cent of GDP by 2060 as the central projection”.

6. Are pensions affordable? There is no financial black hole in public sector pensions. The financial crisis comes from the bankers’ bailout. Government is saying pensions are not affordable, but without defining what they mean by “affordable”. The Public Accounts Committee have said “officials appeared to define affordability on the basis of public perception”.

7. Government’s new proposals “Public Service Pensions: good pensions that last”, published on 2 November. Can be found at: http://www.hm- treasury.gov.uk/tax_pensions_index.htm http://www.hm- treasury.gov.uk/tax_pensions_index.htmhttp://www.hm- treasury.gov.uk/tax_pensions_index.htm Paper describes new career average (CARE) pension scheme and some protection for existing scheme members. This is not a firm offer from Government but a statement of principles. Offers will come out of scheme by scheme negotiations.

8. CARE pensions CARE = Career Average Revalued Earnings Expected to start in 2015. You earn a % of your salary as pension (1/60 th ) each year. Similar to the existing 2008 (retire at 65) scheme. Provision to take lump sum on retirement instead of part of pension, as with the 2008 pension scheme. Annual benefits increased each year in line with wages (no details on how this is to be done).

9. CARE pension continued Pension on retirement no longer linked to final salary but is the sum of all annual benefits. Hutton’s analysis was that “high flyers” benefit disproportionately from existing schemes.

10. A better pension than before? Benefits (per year worked) from CARE pension will usually be less than under the 2008 final salary scheme as benefits will not be boosted by promotion during career. Government figures on pension benefits based on 45 years in full time employment and later retirement. More Government mis-information!

11. Benefits of firm TU negotiation Some protection for lower paid from contribution increases. Government increased benefit from CARE pension to 1/60 th salary from initial 1/80 th to 1/100 th per year (about 25 to 40% less). Significant protection for existing scheme members. This is a real success for TU members.

12. Protection for existing pensions A major concern was that existing pensions may become deferred and cut by 0.75% per year due to indexation to CPI when CARE pensions set up. Proposals indicate existing pension benefits will not become deferred while staff stay in new CARE scheme. Benefits in existing schemes will remain linked to final salary when staff retire or leave scheme. This will protect against CPI indexation until retirement. Staff with 10 years or less from their pension age on 1 April 2012 will see no change in pension age and benefits (Govt intention, not an offer).

13. Some protection for scheme leavers Members who leave the scheme and rejoin within 5 years will be able to link their new service with the previous service as if they had always been an active member. This will keep the earlier benefits linked to earnings rather than CPI (and cut). Firm TU negotiation has led to significant protection from the RPI to CPI cut, but has not thus far reversed the cut. Outcome of legal challenge to CPI still awaited.

14. But protection is not comprehensive Protection only for as long as staff remain in public sector pension. Staff who leave for more than 5 years for child/partner/parent care, redundancy, privatisation or any other reason will lose this protection. All paid pensions will still be linked to CPI and cut year on year, annual pension 13% less after 20 years.

15. Some questions Why does the Government seek confrontation and change by imposition when recent history has shown that pension reform can be achieved by negotiation? What does the Government mean by affordable? What are the projected costs of the current proposals and what assumptions are being made in these projections?

16. Some thoughts Is it right that public sector workers have a pay freeze, pensions and jobs cuts while some bankers and directors get huge bonuses and pay rises? Is it right that public sector staff made redundant should have their paid-for pension benefits cut as well as losing their jobs? Is it right that pensioners should have their pensions cut year on year?

17. The real crisis? Isn’t cutting pensions just sowing the seeds for a new crisis when people with little or no pension provision have to stop working? Like Robert Maxwell at Mirror Newspapers, the Government appears to see pensions as a convenient pot of money to be raided to ease a current funding crisis.