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FDA responds to Independent Public Sector Pensions Commission interim report

The FDA is re-iterating its strong opposition to the prospect of members being required to make increased pension contributions. The prospect of increased contributions has been raised in the interim report of the Independent Public Sector Pensions Commission (IPSPC) which is chaired by Lord Hutton. The IPSPC's terms of reference included a requirement to "consider the case for delivering savings on public service pensions within the spending review period". It has concluded that "there may be a case for targeting contribution increases at high earners or to introduce tiered contribution levels; in a similar way that member contributions are currently tiered in the local government and NHS schemes".

The FDA believes that there are a number of reasons why any short-term move to increase pension contributions would not be fair or acceptable.

Total remuneration

The FDA's initial submission to the IPSPC highlighted a substantial shortfall in the base pay and total remuneration of those in the civil service grades represented by the FDA, in comparison with comparable jobs in both the wider public and the private sectors. We made clear that any proposal for increased contributions and or other significant changes to the existing structure of pension provision could only be fairly considered as part of a wider review of total remuneration. The IPSPC report sets out an outline analysis comparing earnings in the public and private sectors. This is, however, very general and doesn't drill down to provide a like-for-like analysis. We welcome, therefore, the IPSPC's intention to investigate more closely the disparity in total reward between the public and private sectors and its acceptance that "for a full analysis the Commission must compare like with like, taking account of individual skills qualifications and experience". The FDA stands ready to contribute to any detailed review of total reward and does not accept that pension provision can meaningfully be considered in isolation from other aspects of pay and reward.

Pay freeze

The FDA's initial submission made clear that "it would be totally unacceptable for there to be any consideration of increased costs being imposed on the union's members.... especially during a pay freeze". It is highly disappointing, therefore, that the IPSPC report makes only one reference to the current pay freeze across the public sector - in the context of reducing the number of public servants who opt out of being a member of their respective pension scheme, usually because of the cost. In order to reduce the level of opt-outs the Commission recommends that "the Government should consider staging any increase in contributions especially in the context of the current pay freeze".

RPI/CPI

In June's Budget it was announced that public sector pensions would, in future, be uprated in line with the CPI rather than the RPI. Although there have been periods, since its inception, in which CPI has increased at a faster rate than RPI, overall this is not the case. There are technical differences in the way in which each index is calculated that mean that CPI inflation will, on average, be lower than RPI inflation. The effect of the change in index is therefore to reduce - over time - the real value of public sector pension benefits and to deliver substantial cost savings. The IPSPC has commissioned some analysis on this and estimates that the change to CPI together with the reforms made to public sector pension schemes in 2007 may have reduced the value of pension benefits by 25% when compared to their value pre-reform and with RPI indexation. The overall impact is to reduce the cost of public sector pensions by 10% (£5 billion at 2008-09 prices) by 2030 and 20% (£20 billion) by 2060. In terms of GDP the IPSPC estimates that public sector pension costs will fall from a peak of 1.9% of GDP in 2010-11 to 1.4% by 2059-60. These new figures reinforce the point made by the FDA and the TUC in their submissions that public sector pensions remain affordable and sustainable in the long term.

The FDA remains opposed to the change from RPI to CPI for uprating pensions. We will, nevertheless, not allow the Government to ignore the fact that the change delivers a substantial cost reduction, at the expense of our members' pensions, even before any other possible changes are considered.

Longer-term changes

The report is lengthy, and often technical, and establishes a 'direction of travel' rather than proposing specific changes at this stage. However, a number of other themes emerge in addition to considering immediate cost savings.

The Commission has stated that it will be giving detailed consideration to a number of potential long term changes to public sector pension provision and will set out its conclusions in a final report to be published in April 2011.These include potential changes that would adversely impact upon current pension arrangements and which will not be welcomed by FDA members including:

  • to increase the normal pension age, i.e. the earliest age at which an individual can draw a pension without reduction, currently 60 in Classic, Classic Plus and Premium and 65 in NUVOS;
  • to transfer members of final salary schemes (Classic, Classic Plus and Premium) into a career average scheme (NUVOS or similar);
  • to introduce an earnings or pensions cap, and create top-up pension arrangements for those whose earnings or accrued pension exceed the cap.

Needless to say, should the Commission recommend such changes they would substantially reduce the value of public sector pensions to our members.

Where from here?

The FDA will be presenting further evidence to the Commission on the issues raised in this interim report. However, we have made clear that there should be no changes to any aspect of public sector pensions without full negotiations with unions. Moreover until such time as we have had an opportunity to consider both the detailed recommendations that will arise from the IPSPC and any detailed analysis of total reward that may be produced it would be wholly unacceptable for the Government to seek to impose increased contributions on members.

FDA, Elizabeth House, 39 York Road, London, SE1 7NQTwitter
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