8 February 2013 – UNISON Response to Department of Health consultation on The draft NHS Pension Scheme, Additional Voluntary Contributions and Injury Benefits (Amendment) Regulations 2013

Please contact Christina McAnea, Health Group National Secretary () or Alan Fox, National Pension Officer ()

UNISON is the UK’s largest health care trade union representing over 400,000 working in the NHS and for private contractors providing NHS services.

Our health members are nurses, student nurses, midwives, health visitors, healthcare assistants, paramedics, cleaners, porters, catering staff, medical secretaries, clerical and admin staff and scientific and technical staff.

Our health care members continue to value the importance of saving for their retirement through the NHS Pension Scheme (NHSPS) although there is no doubt that the 2012-2013 imposed contribution increases have made this financially difficult, if not impossible, for many.

For the avoidance of any doubt UNISON remains firmly opposed to the Treasury’s 2010 Spending Review commitment to raise £1.2 billion extra revenue from the NHSPS over the period 2012-2015. The fact remains that an average 3.2 percentage point increase is a considerable ask in the current economic climate and risks proving counterproductive in forcing staff to opt-out through shear inability to pay.

UNISON is still firmly of the view that these increases are nothing more than an unjustified tax brought about by the recklessness and excesses of the City. The NHSPS is after all still very much a cash rich scheme meaning that any additional income will simply flow to the Treasury with there being no guarantee that this will be ring-fenced for the NHSPS.

This consultation document proposes the second instalment of the phased employee contribution increases over the 2010 Spending Review period, to take effect from the 1 April 2013, and it’s this issue that our response is primarily focused on.

Proposed employee contribution increases for the scheme year 2013-2014

Sheer affordability

It is abundantly clear that sheer affordability of pension contributions is a financial challenge for many given that NHS employees are in the midst of a pay freeze with the cost of living far outstripping typical salary growth. This has been the case for a considerable time now and the expectation is that this will continue for the foreseeable future.

Furthermore, many health workers face an uncertain period given the Government’s health reforms and risk losing their job or being outsourced to an independent provider of medical services.

Given these challenges it’s obvious that being asked to pay more into their pension, for a second year in a row, risks members opting-out of the pension scheme potentially endangering the financial viability and positive cash position of the scheme.

NHSPS opt-out data and trends

We are led to believe from the two separate opt-out information reports produced by NHS Business Services Authority (BSA) and the NHS Workforce Data Analysis Team (WDAT) that the contribution increases implemented in 2012-2013 have had only a very marginal effect on the level of scheme opt-outs.

These reports have regularly been presented at the NHSPS Technical Advisory Group (TAG) and Governance Group (GG) meetings over the last 7 months and have tended to show a consistent opt-out level around the 0.3% mark. Indeed you have enclosed the October 2012 opt-out reports in your Equality Analysis accompanying this contribution paper which show an overall estimated reduction in scheme membership of around 0.3% across the whole workforce as compared against the equivalent year’s data.

Although UNISON considers these reports helpful (notwithstanding our concerns about data collection methods and the actual quality of the data collected) these do not address the principal question of pension opt-outs relative to payroll and the Treasury’s 1% target in this respect.

It is our understanding that the Government Actuaries Department (GAD) collates this information as they are required to regularly report to HM Treasury on compliance with this target. However, the Department of Health have routinely stated to us and NHS Staff Side colleagues that this cannot be shared with us, but that we can be reassured that the pension opt-outs are well within the 1% target of pensionable payroll.

Frankly UNISON considers this stance unhelpful and would welcome this information being provided at future NHS TAG and GG meetings along with the current WDAT and BSA data in the interests of full transparency.

It’s worth noting from the October 2012 WDAT opt-out report (which analyses data collected in July 2012) that there are exceptions to the overall average 0.3% reduction reported. For example, on a headcount comparison, over the period October 2011 to July 2012 there were scheme membership reductions in excess of 1% for Grade 1 administrative and clerical staff and Grade 3 and 4 maintenance workers. A 1% reduction for Grade 5 Senior Technicians is also reported.

Given that it’s likely to take some time until the full impact of the phased average 3.2% employee contribution increases is felt it’s vital that careful analysis of this information continues to be regularly undertaken. Already we are starting to see some potential concern for those members on the lower relative income bands.

2013-2014 contribution yield distribution

UNISON’s opposition to the proposed contribution increases is more to do with the rationale and justification for these rather than the proposed distribution of these increases for the 2013-2014 scheme year.

UNISON remains firmly of the view that the lowest paid particularly need protecting and support the increase in the £15,000 earnings threshold to £15,278 to reflect AFC pay rises for those earning less than this. However this relatively small increase is unlikely to address the problem of higher opt-out rates amongst the lower salary bands.

Given the GAD estimate of there being around 540,000 active members in the NHSPS (as at the 31 March 2008) with full-time equivalent pensionable pay between £26,558 to £48,982 it’s imperative that specific scrutiny is given to this earnings band in light of the proposed 1% gross contribution increase for these members and rise in contribution to 9% gross.

UNISON would welcome more transparent data on how these contribution proposals will break down for part-time staff.

A member working half-hours with an actual pensionable salary of £24,491.50 would be subject to a 2.4% increase and a gross contribution rate of 11.3% for the scheme year 2013-2014 if these proposals are implemented which on the face of it sounds a very hefty contribution rate for someone earning less than UK national average earnings.

Robust data to enable proper PT/FT member comparisons

It is worth noting that the reforms to the Local Government Pension Scheme to be implemented in April 2014 include the current contribution structure being reformed so that contribution tiers are based on actual pensionable pay rather than full-time equivalent pensionable pay.

The main rationale for this change is to try to provide contribution protection for the large numbers of relatively low paid members who work part-time across the local government workforce. Indeed around 2/3rds of local government staff earn less than £21,000 a year.

Whilst recognising that the distribution of the NHS workforce across pay bands is very different, we believe it may be useful to examine this issue and in particular the impact on different groups and the potential impact across the wider NHS workforce of any proposed changes.

Comparison with other public service schemes

It’s clear that the average contribution rate of members of the NHSPS is higher than others, most notably the Local Government Pension Scheme and Principal Civil Service Pension Scheme.

If the proposed 2013-2014 contribution rates are implemented, a member with full-time pensionable pay in the NHSPS equivalent to the UK national average salary of £26,500 would pay a gross contribution of 6.8%. This compares to a rate of 6.5% for LGPS members and 5.88% for PCSPS members (not in the Classic scheme).

Many of our members will understandably question why they are being asked to pay more in pension contributionsthan another worker performing a public service, particularly at a time when health services inparticular are facing wide scale reform and job security is uncertain.

UNISON has repeatedly asked the Department of Health for a specific answer on these contribution variances and have frankly never received an adequate answer.

The revocation of current cost sharing provisions

UNISON acknowledges the Cost Cap and Floor and Ceiling that will apply to the reformed NHSPS post 2015 and that the existing scheme regulations need to be revoked in so far as they apply to the previous actuarial valuation and cost-sharing processes with all future resources being best spent on the upcoming actuarial valuation needed to establish the new schemes.

UNISON is concerned however that a possible unintended consequence of these legislative amendments would be the removal of the current requirement for the Department of Health to take advice from employee and employer representatives prior to consulting on possible changes to member contribution rates and bands.

UNISON considers it essential that there continues to be statutory reference to the need to seek the advice of employee representatives prior to consulting on potential member contribution changes.

Auto-enrolment

UNISON supports the proposed amendments in the regulations to ensure that the NHSPS is the sole scheme for the purpose of pensions auto-enrolment and re-enrolment for staff eligible to join it. We believe this is vital to protect the integrity of the scheme and to try to secure the best possible retirement outcomes for healthcare workers.

We also feel that there’s scope for reviewing the current categories of worker that are not entitled to join the NHSPS who may have to be enrolled in a qualifying scheme under the auto-enrolment requirements.

If an employee is not entitled to contribute to the NHSPS (for example because they have reached the 45 years membership limit) it’s difficult to see the practical benefit of being auto-enrolled into a defined contribution pension scheme for a limited period – with in all likelihood the minimum statutory contributions required.

Unauthorised payments

The consultation paper proposes to amend the 1995 Section regulations to ensure that all unauthorised payments are strictly prohibited.

UNISON believes there should be limited scheme flexibility to pay an unauthorised payment where it’s clear the member has a specific scheme entitlement to a benefit that would otherwise be prejudiced. For example, would it be fair to withhold a death in service lump sum payment to a beneficiary if through no fault of their own the payment was delayed beyond two years of the date of the member’s death?

If the regulatory intent is to not permit any payment of benefits that would constitute an unauthorised payment then we fear this could lead to a number of future Pensions Ombudsman or court claims.

There needs to be scheme flexibility in this respect where it’s clear that the individual has a scheme entitlement and the reason for the payment being unauthorised is through no specific fault of their own.