Fire Brigades Union
Pensions Crisis
Powerpoint Presentation
Accompanying Notes
The following notes should be used in conjunction with
the FBU ‘Pensions Crisis’ Powerpoint Presentation.
*Click the Powerpoint Presentation when the Red Asterix is indicated, to change the Slide or Text in line with these notes.
*Slide 1
The UK Government has been for some time looking at radically changing Pension Schemes.
This presentation discusses:
1.The Firefighters’ Pension Scheme (FPS): Firefighters; and
2.The Local Government Pension Scheme (LGPS): Emergency Fire Control Operators.
It is important that All Members are fully aware of:
- The Facts
- The Fiction
- The Fight
*Slide 2
The main areas to cover in order to get a clear overview of the issues are:
*Background Information on Pensions
*Arguments for Change
*Proposed Changes to FPS
*Proposed Changes to LGPS
*Timeframes for FPS
*Timescales for LGPS
*Conclusions
*Is It Legal?
*What Has Been Done So Far?
*What Can We Do Now?
*Slide 3
*Background Information on Pensions
*In the UK there are 3 distinct different Pensions Schemes:
*1.The State Pension:
The State Pension Scheme (State Earning Related Pension Scheme - SERPS) is a funded Scheme, which is available to all, paid for through taxation.
*2.The Private Sector Pension:
Private Pension Schemes are funded schemes that individuals contribute to, either through privately organised investments or through their employer (occupational scheme).
*3.The Public Sector Scheme:
Public Sector Schemes are Final Salary Occupational Schemes that are paid for by both Employer & Employee contributions. ie: Civil Service, Teachers, Police, Fire Service, Health Workers, etc
*Slide 4
*The Government is making changes to all Pension Schemes. The main changes are:
*1.State Pension Scheme:
The recent Turner Report proposed that the retirement age should be increased from 65 to 68.
*2.Private Sector Schemes:
Many schemes will be devalued and the Final Salary calculation will be abolished.
*3.Public Sector Schemes:
The most amount of changes are being proposed for public sector pension schemes. They include:
- Increasing the Retirement Age
- Increasing the Contribution Rates
- Decreasing Accrual Rates
- Decreasing Ill Health/Injury Benefits
- Closer and Replacement with Less Favourable Schemes
*Slide 5
*Firefighters Pension Scheme & Local Government Pension Scheme
*Firefighters Pension Scheme:
*The Firefighters Pension Scheme is only open to Wholetime Firefighters. Retained Firefighters & Emergency Fire Control Operators are not eligible to join. This excludes 1 in 3 Operational Firefighters from the Scheme. This is currently being challenged in the House of Lords.
*The main difference between the Firefighters Pension Scheme and the Local Government Pension Scheme is that the FPS is unfunded whereas the LGPS is funded.
This means that the Pensions of those in the unfunded FPS are being paid for by the contributions of those presently paying into the scheme.
*The Government has been pushing the line that the FPS is hugely expensive. This is totally erroneous. The fact is that the Government is getting the FPS on the cheap. An example of the Government’s push to give the false impression of expensive costs are highlighted in the inaccurate high figures quoted for ill health retirements.
*Local Government Pension Scheme:
*The pensions of those in the LGPS are being paid for through the investment returns made from investing previous contributions. This is done mainly through Equity Yields (Stock Market) or Gilt Yields (Government Bonds).
*Slide 6
*Issues Common to all Pension Schemes
*The value of any Pension Scheme is based on projections or assumptions.The assumptions include Life Expectancies, Final Salary & Inflation. There has been a 30% inprovement in the 8 years up to 2002.
*On the FPS, the Government Actuaries’ Life Expectancy Assumptions were described as being at the “Far End” of what is reasonable. This makes the FPS look much worse than it actually is.
*Government Report states that:
*People are not paying enough Contributions
*People are Living Longer
*People are Retiring too early
*Slide 7
*Nearest Comparable Scheme to FPS
*The closest Pension Scheme to the FPS is the Police Pension Scheme.
*The Home Office, who are responsible for the Police, have already agreed to ring-fence all current Police Officers in their existing Scheme and all new entrants will enter a new Scheme.
When asked why the Police were being totally ring-fenced and Firefighters weren’t, Prescottstated that it was because Police Officers have a “more dangerous job”! The Police are 24th on the Government’s list of most dangerous jobs in the UK - Firefighters are 23rd !
There are over 3 times the number of Police Officers than Firefighters and they earn higher salaries. There is therefore no financial argument not to treat Firefighters the same as Police Officers.
*Consequently, Firefighters are the only emergency workers who are not being offered the protection of ring-fencing.
*It must be highlighted, however, that the Union’s long standing policy is to oppose ring fencing as it is divisive. Unfortunately, when Firefighters die, they die in pairs. It would therefore be unacceptable for their families to be treated differently in terms of the scheme.
*Slide 8
*Government’s Arguments For Change
The Government’s need for change is based on 3 main factors:
*1.Affordability;
*2.Flexibility; and
*3.Modernisation
The affordability has already been covered in previous slides. Flexibility, is an indication of the Government’s desire to keep their “options open” regarding any future changes that they may wish to make.
The word “Modernisation” is well known to Firefighters & Emergency Fire Control Operators as well as many other Public Sectors Workers. It requires little explanation.
*Slide 9
*Local Government Minister, Phil Woolas, in a Press Release in September 2005, stated that:
*"All public sector pension schemes are facing change and it is right that we modernise firefighters' pensions - the most expensive scheme in the public sector.
"We have carefully considered the responses to our pensions consultation and these proposals reflect the comments we have received, particularly the concerns of serving firefighters. We want a new scheme which is generous but affordable for both firefighters and the taxpayers that fund them and changes to the existing scheme which will help limit future costs.
"These proposals are in line with our aim of developing a modern Fire and Rescue Service and honour our commitment to introduce new pension arrangements. They also reflect changes in the new legal requirements, for example on pensions taxation."
Phil Woolas was the apprentice and successor to Nick Raynsford!
This statementis a good indication of where the Government is coming from and their intentions for Fire Service pensions!
*Slide 10
*Three Government Departments have responsibilities for Public Sector Pension Schemes:
*1.Home Office: Police
*2.Department of Work & Pensions (DWP):Health, Teachers, Civil Service, Etc
*3.Office of the Deputy Prime Minister (ODPM):Local Government Scheme &
Firefighters’ Scheme
As stated, the Police Scheme (Home Office) has been settled, as have the Public Pensions Schemes (DWP). The only 2 outstanding settlements are those Schemes governed by the ODPM, namely a certain Mr John Prescott. Coincidence?
*Slide 11
*Proposed Changes to FPS
*The ODPM has published Consultation Documents on:
*1.Proposed Changes to the Existing Firefighters Pension Scheme; and
*2.Proposed New Firefighters Pension Scheme
*The ODPM has failed to clarify their exact proposals for changes to Ill Health Retirement enhancements. This was promised on 14th January 2005. We are still waiting.
*Slide 12
*The Office of the Deputy Prime Minister’s proposals are in 2 parts:
*There will be amendments to the existing FPS Scheme that will affectALL MEMBERS.
*A new scheme will be introduced for those individuals who enter the Fire Service after 1st April 2006.
*Slide 13
*There are 3 groups who will be eligible to enter the New Scheme:
*1.New Wholetime Firefighters;
*2.New & Existing Retained Firefighters;
*3.Existing Wholetime Firefighters who choose to Opt In.
*The Existing or New Schemes will not be open to Emergency Fire Control Operators to join.
*Slide 14
*The main changes to the Firefighters’ Pension Scheme are:
*1.Retirement Age & Accrual Rates:
There will be no “compulsory” retirement age in the sense of an age at which a member will be required to retire. Instead, a member will be able to carry on in the job as long as they remain fit enough for duty.
The minimum age at which a firefighter can leave and draw an immediate and unreduced pension will go up from 50 to 55 (regardless of the length of pensionable service).
Should a member retire before the normal retirement age, the cost of early payment would be met by the member via an actuarial reduction of benefits.The pension earned prior to 1st April 2006 will be unreduced, however, the pension earned afterwards will be reduced by approximately 5% for each year between the age of retirement and age 65. In other words, if a member retires at 50, the reduction will be 75% (15 years x 5%).
Should a member work beyond their 30 years service, they will accrue additional years of pensionable service, however this additional accrual rate will be in 1/45ths and up to a maximum of 35 years. Therefore, after 35 years pensionable service, the pension will be 35/45ths of final salary (that is 40/60ths plus 5/45ths).
An alternative could be that a member could complete their 30 years pensionable service and then transfer into the new scheme. The pension in the new scheme accrues in 1/60ths but the contribution rate is lower. At eventual retirement age of 55, the member’s pension would be 40/60ths plus 5/60ths of final salary.
If a member decides to leave the pensions scheme when they accrue 40/60ths, but have not yet reached 55 years of age, they will be treated as an Early Leaver in which case their pension will be deferred until they are 65 years old.
*Pensionable Pay will be defined as Core Pay & Permanent Emoluments. It will exclude Overtime, Flexible Duty Allowance, Retaining Fee & Long Service Bounty Payments. CPD Payments are still subject to review.
*2.Transitional Arrangements
Members who reach the age 50 before 1st April 2013 and have 25 or more years service will not be affected by the changes to the retirement age. The earliest that other members will be able to retire without any reduction will be 55.
*3.Deferred Pension
At present, Pensions that are deferred are done so until the member reaches the age of 60. This will change to 65. The Pension could be paid prior to 65:
- On the grounds of permanent Ill Health at any age, without any reduction;
- At the age of 55 a member can request for the pension to be paid, but will incur a 5% per year reduction from age pension is paid to age 65; or
- A member with less than 2 years service can claim a refund, or transfer accrued pension rights into another scheme.
*4.Ill Health Retirement
There will be a 2 Tier arrangement, applicable to all members: Higher Tier & Lower Tier.
If a firefighter, as a result of an injury or disease, becomes unfit to perform the duties of a regular firefighter, then the FRS will have to look to see if there are other non-firefighting roles that they can perform. If there are, then the firefighter concerned will not be able to take an ill-health pension.
If there is no possibility of continued employment then the new 2 Tier Scheme will then be referred to.
*Higher Tier
Those members who are permanently disabled and unable to work again will receive and immediate enhanced pension based on a new sliding scale. It has not yet been indicated what the enhancements will be for a qualifying injury.
However, if the condition of the former member improves so that they can undertake regular employment, the enhancement will be removed and substituted with a pension based on actual length of service only.
*Lower Tier
This will be paid to those who can take other regular employment. They will receive an immediate pension based on length of pensionable service, with no enhancements.
If the condition of the former member improves so that they could return to the role of a firefighter, the pension will cease and be replaced by a deferred pension. The Authority will also have to consider re-employing that member.
*5.Survivor Pensions:
Partners/Spouses
The New FPS will extend benefits to unmarried partners who have registered their partnership.
For Serving Scheme Members, the spouse/partner’s pension will be 50% of the member’s notional* pension.
For Retired Members, the spouse/partner’s pension will be 50% of the member’s pension.
*A Notional Pension is what the member would have been entitled to at the time of death plus any qualifying enhancements.
Children
The New FPS will be extended to the children of unmarried partners, civil partners, step children, adopted children and other children dependant on the member of the spouse, unmarried partner or civil partner.
5 Year Guarantee
The member’s estate will be guaranteed a maximum sum equal to 5 years pension (thereafter reducing incrementally for payments made), should the member die within 5 years of retiring.
A retired member’s spouse/partner will continue to receive 50% of the member’s pension.
At the member’s request, they will be able to allocate all or part of their pension to a dependant.
*6.Death Benefit:
The Death Benefit will be 3 times a member’s pensionable salary at the time of death.
The previous Grey Book (5th Edition) paid 5 years salary for on duty deaths, which was abated with the pension scheme, however, the new grey book (6th Edition) no longer has this provision. Therefore the maximum award will be 3 times pensionable salary.
*Slide 15
Example 1
*Slide 16
Example 1 continued
*Slide 17
Example 2
*Slide 18
Example 2 Continued
*Slide 19
Example 3
*Slide 20
*Proposed Changes to LGPS
The main changes to the Local Government Pension Scheme, that affects Emergency Fire Control Operators, are:
*1.Removal of the “85” Rule:
The “85” Rule is based on the sum of the member’s age & length of service adding up to 85. This being removed has 2 effects:
*to increase the normal retirement age for most members from 60 to 65; and
*to raise the earliest retirement age from 50 to 55, excluding ill-health retirements.
There has been no clear commitment to protect current members’ service, but it is likely that there will be a hefty reduction in pensions for those wishing to retire before reaching 65 years of age.
*2.Increased Contribution Rates:
Contributions would vary between 5.5% to 9% depending on earnings (contributions are currently 6%). For most Emergency Fire Control Operators, this would constitute an increase.
*3.Restricted Pensionable Pay
A member’s pensionable salary would be their core salary only. Any additional allowances would be excluded.
*4.Ill-Health Retirements
New arrangements will incorporate a Two Tier System
*Slide 21
*Two Tier System
The proposals intend to differentiate between:
*those who are permanently incapable of performing any gainful employment; and
*those incapable of continuing in their role but capable of other gainful employment.
*Only those in the first category would get an enhanced pension. However, a second tier of unenhanced ill-health retirement benefits could be available to those who are incapable of continuing in their role, but who are capable of undertaking other employment.
Both the enhanced & unenhanced benefit would be subject to review, and could be reduced or cease if the member took up subsequent employment.
Should members decide to retire at 60, instead of 65, this will incur a reduction to their pension. The pension itself will be reduced by (male) 33% & (female) 27%, with an overall reduction to the lump sum of 11%.
*Slide 22
*Timescales for FPS
*The Government plans to close off membership of the current Firefighters’ Pension Scheme to new entrants starting after:
*1st April 2006.
*This timescale may slip. Should this occur, new entrants will start in the current scheme and will be automatically transferred into the new scheme when it is enacted.
*Because of the political make up of the UK, implementation could be staggered.
*Despite this late stage, there is still no indication from the Government what the enhancements will be for those members who retire due to ill-health.
*Slide 23
*At This Time We Must Assume, that ODPM Will Try To Meet Their 1st April 2006 Timeframe For The Implementation of a New Scheme and Changes to the Existing Scheme.
*Slide 24
*Timescales for LGPS:
*The Government decided not to proceed with the proposed changes to the LGPS in April 2005. The fact that there was a General Election taking place in May 2005, and that the Big Union’s were threatening National Strike Action, may have had something to do with it!
*They said that they intended to seek further consultation with key stakeholders.
*The Green Paper, however, remains. It sets out a series of proposals that are scheduled to be introduced,beginning in April 2006 and to be completed by April 2008.
*Slide 25
*Conclusions
*Overall, the proposals will effect different Members in a variety of different ways. This is dependent on the member’s:
*Age
*Length of Service
*Duty System
*Role
*Health
*Family Circumstance
*Slide 26
*Is it Legal?
The legality of the Government’s proposals and the way in which they have presented them & have been pushing them through has been questioned by many members.
*Put simply, as long as the Government consults with all the relevant stakeholders, then they can implement changes to the schemes.
There are 3 significant Acts of Parliament that pertain to the issue of Fire Service Pensions:
*1.Fire & Rescue Services Act 2004
This Act does not afford any Protection for Accrued Rights
*2.Superannuation Act 1972
This Act does not afford any Protection for Accrued Rights