NUT BRIEFING ON PENSIONS
JUNE 2010
This NUT briefing gives details of the pensions announcements made by the Coalition Government in its first Budget on 22 June 2010 or immediately beforehand, including the establishment of a Public Service Pensions Commission and other changes to pension arrangements.
PUBLIC SERVICE PENSIONS COMMISSION
The Government has announced the establishment of a Public Service Pensions Commission to examine the long term affordability of public service pensions, while protecting accrued rights. At the time of writing (24 June 2010) the Union is in urgent discussions with the TUC and other teachers’ unions regarding a co-ordinated response to the Commission.
The Commission will produce an interim report by the end of September 2010 to consider the case for short-term savings within the Spending Review 2010 period to contribute to the reduction of the structural deficit and will produce a further report making full proposals for the 2011 Budget. The Commission is to be chaired by John Hutton, former Labour Secretary of State for Work and Pensions.
The Union believes that the reforms already introduced into the Teachers’ Pension Scheme (TPS) and other public sector pension schemes as a result of the 2005 agreements between the Labour Government, the TUC and the public sector unions have made public sector pensions sustainable for the long term. The TPS changes include higher employee contribution rates, higher retirement ages for new joiners and a cost-sharing agreement to limit increases in employer contributions.
The effect of the reforms already introduced will be to cut the rising long term costs of public sector pensions as a proportion of GDP. Their costs will rise temporarily from 1.8 per cent of GDP now to 1.9 per cent between 2020 and 2030 (an unavoidable increase as an ageing workforce retires on pensions which the Government has promised will be protected) before falling back below the current cost, being 1.7 per cent of GDP from 2050 onwards.
Updated versions of the Union’s campaigning documents on the case for teachers’ pensions, which include a detailed refutation of the many scaremongering arguments about their costs, are available on Hearth at:
The Union rejects the establishment of the Commission. Statements made by Ministers about their intentions to attack public service pensions show that the outcome of the Commission is prejudged. It is not ‘independent’ and its terms of reference cannot be described as ‘neutral’. The Government clearly intends to seek to cut the living standards of millions of public sector workers in retirement, regardless of the evidence.
The terms of reference (appended) confirm the Government’s stated intention to protect accrued rights. However, the Budget’s proposed changes to uprating of public service pensions will affect all current and future pensioners, as set out below.
The terms of reference also ask the Commission to examine which organisations should have access to public sector schemes. This may suggest that the Commission will consider restrictions on the ability of teachers outside the LA sector (e.g., in Academies or independent schools) to join the Teachers’ Pension Scheme.
CHANGES IN STATE AND OCCUPATIONAL PENSIONS
Indexation of Public Service Pensions
From April 2011, the indexation of State second pensions such as SERPS will be undertaken by reference to the Consumer Prices Index (CPI) rather than to the Retail Prices Index (RPI). This will also apply to public service pensions governed by the 1971 Pensions (Increase) Act.
Although this change appears innocuous, it will fundamentally affect teachers’ living standards in retirement. RPI inflation is normally higher than CPI inflation – RPI includes council tax and housing costs which do not appear in the CPI, while the method of calculating CPI means that it will generally be below RPI in any case.
RPI inflation is currently 5.1 per cent, compared to 3.4 per cent for the CPI. Over the past 10 years, the increase in the RPI has been 10 per cent higher than the increase in the CPI. The Union estimates that a teacher retiring at 60 with a £10,000 a year pension would lose out by almost £49,000 over a 26-year retirement if the RPI increase remained 1 per cent higher than CPI each year.
The Union views this change of indexation practice as a breach of the Coalition Government’s promise to protect accrued pension rights. Prior to the election, the Conservative Party had given assurances that it had “no plans to change the current index-linking of pensions in payment”.[1] The Union will strongly oppose this change in co-operation with the TUC, the Public Service Pensioners Council and other organisations.
BasicState Pension
As expected, the Chancellor announced the restoration of the earnings link for the basic State pension from April 2011, with a ‘triple guarantee’ that the basic State pension is raised by the higher of average earnings increases, price inflation or 2.5 per cent. However, the use of the RPI as the ‘price inflation’ measure will be discontinued from April 2012 in favour of the CPI.
The Union welcomes the restoration of the link between the basic State pension and earnings, which was broken in 1980, but opposes the switch from RPI to CPI for the reasons set out above.
Increase in State Pension Age
The Government has announced a review of the implementation date for the increase in the State pension age of to 66.
Under current law, the State pension age for women is being raised from 60 to 65 between 2010 and 2020, with the State pension age for both sexes rising to 66 between 2024 and 2026. The new Government’s Review could involve the State pension for men moving to 66 in 2016, with women following after 2020.
The Union opposes an increase in the State pension age. Such a change could potentially affect those in their late fifties who have made plans to retire at the existing State pension age.
Age-related Personal Allowances
While there was an announcement that the basic personal allowance would be raised from £6,475 to £7,475 in the 2011-12 tax year, there was no announced increase in the age-related personal allowances for the over 65s and over 75s.
Concessions Linked to State Pension Age
The Government has confirmed that the age at which these benefits can be claimed (such as Winter Fuel Payments, free off-peak local bus travel, eye tests and prescriptions) will rise in line with the female State pension age.
SS&EE Department
APPENDIX
PUBLIC SERVICE PENSIONS COMMISSION
TERMS OF REFERENCE
To conduct a fundamental structural review of public service pension provision and to make recommendations to the Chancellor and Chief Secretary on pension arrangements that are sustainable and affordable in the long term, fair to both the public service workforce and the taxpayer and consistent with the fiscal challenges ahead, while protecting accrued rights.
In reaching its recommendations, the Commission is to have regard to:
- the growing disparity between public service and private sector pension provision, in the context of the overall reward package – including the impact on labour market mobility between public and private sectors and pensions as a barrier to greater plurality of provision of public services;
- the needs of public service employers in terms of recruitment and retention;
- the need to ensure that future provision is fair across the workforce;
- how risk should be shared between the taxpayer and employee;
- which organisations should have access to public service schemes;
- implementation and transitional arrangements for any recommendations; and
- wider Government policy to encourage adequate saving for retirement and longer working lives.
As part of the review, the Commission is invited to produce an interim report by the end of September 2010. This should consider the case for delivering savings on public service pensions within the spending review period – consistent with the Government’s commitment to protect those on low incomes - to contribute towards the reduction of the structural deficit.
The commission is invited to produce the final report in time for Budget 2011.
-1-12 September 2018
[1]Letter from Conservative Treasury spokesperson, Philip Hammond, to Civil Service Pensioners’ Alliance, April 2010