union for life

Q&A

Q&A on civil service pensions

There's a lot of misinformation and misunderstanding about civil service pensions. Here are some of the questions that people ask us.

The questions:

Q1. Why are you calling for a ‘Yes' vote in the ballot for industrial action over public service pensions?

Q2. What changes is the Government seeking to impose?

Q3. People are living longer so pensions will cost more. Is the Government not correct to seek to reform public service pension schemes to ensure they are sustainable?

Q4. You claim that public service pensions are already sustainable. Can you back this up?

Q5. Current projections of the cost of public service pensions show significant reductions in the short, medium and long term. What would the projections show once the Government's proposals were imposed?

Q6. Are these reforms required to ensure fairness between public sector workers and private sector workers?

Q7. Were contributions not due to increase from April 2012 under the agreement with the previous Government anyway?

Q8. Then what is the justification for the increase in contribution rates?

Q9. The schemes appear to be sustainable. There is no basis for suggesting that changes are required to bring public sector workers into line with those in the private sector. Increases of 3% or more challenge the very viability of the schemes due to the risk of members opting out. So why is the Government seeking to impose this level of increase?

Q10. I am paying additional contributions for ‘added years' or ‘added pension'. How am I affected?

Q11. I work part-time, how am I affected?

Q12. My pension scheme is a contractual benefit. Prospect should take the Government to court if it seeks to impose these changes.

Q13. Why are you balloting while negotiations are ongoing?

Q14. What do you hope to achieve on 30 November?

Q15. I am not a frontline worker, so taking action on 30 November will not have much effect because the public will not notice.

 

The answers:

Q1. Why are you calling for a ‘Yes' vote in the ballot for industrial action over public service pensions?

A1. Briefly: the Government is seeking to impose highly detrimental changes to members' pension schemes; Prospect is not opposed to discussing reforms to the schemes but the changes the Government wants to impose are unfair and place a disproportionate burden on public sector workers; months of discussions have brought us no closer to a reasonable agreement that members could vote for in a ballot; the Government is pressing on with its plans despite our attempts to negotiate a more reasonable outcome; Prospect's considered view is that the best way of persuading the Government to enter serious discussions with a view to reaching an agreement, is to join with millions of other public sector workers in a concerted day of action on 30 November. We are urging members to vote ‘Yes' to help protect their pension from unfair attack.

Q2. What changes is the Government seeking to impose?

A2. There are many changes: some have already been imposed, some are being consulted on and others are proposed for the future.

Imposed. Last year the Government announced that it would switch the inflation index used to increase pensions in payment from the Retail Prices Index to the Consumer Prices Index. This came into effect from April. The interim report from the Hutton Commission estimated that this would reduce the value of the average public service pension by about 15%. To put this in context, for a member drawing a pension of £8,000 per annum from age 60 the switch to CPI will cost about £30,000 over their retirement.

(The challenge, by way of Judicial Review, will begin at the High Court on 25 October).

Consulting. The Government is currently consulting on increasing member contributions from April 2012. The average increase will be 1.3% of pay but the actual increase will depend on members' earnings.

Proposed. Increases in contributions are also proposed for April 2013 and April 2014. On average, contribution rates will increase by 3.2% in total with higher earners potentially paying up to 6% more.

There are also proposals for a new benefit structure to come in from April 2015. Existing benefits accrued before then would be protected (eg pension age of 60 or 65 with that part of the pension already accrued based on final salary on leaving the scheme). But future benefits will be subject to a higher pension age (up to 68 and possibly higher if the State Pension Age increases further in future). The new scheme will be career average (rather than based on current final salary before leaving the scheme) and will build up at a different rate to that in use now.

Q3. People are living longer so pensions will cost more. Is the Government not correct to seek to reform public service pension schemes to ensure they are sustainable?

A3. It is vitally important that public service pensions are sustainable. As taxpayers and members of the schemes in question, public servants are more aware of this than anyone. This is why Prospect and other public sector unions came to an agreement with the last Government to ensure the schemes would remain sustainable. That agreement capped the cost of these schemes to taxpayers. This meant that, if the costs of providing pensions rose, changes such as increased member contribution rates or a higher pension age would come in over time. 99% of Prospect members voted in favour of this agreement in 2007. Despite the fact that it achieves the aim of ensuring that the schemes are sustainable the current Government has unilaterally set aside that deal.

Q4. You claim that public service pensions are already sustainable. Can you back this up?

A4. Independent projections from the Hutton Commission and the Office for Budget Responsibility allow us to evaluate the sustainability of these schemes.

First, we have to decide on the measure for assessing sustainability. Hutton's interim report stated that the amount of benefits paid from the schemes, expressed in terms of our ability to pay for them (ie in terms of UK national income or Gross Domestic Product) is a fair measure. Prospect agrees that this is the most reasonable measure that can be used.

Projections from the Office for Budget Responsibility in July 2011 show that the gross cost (ie not taking into account the contributions received from members) of the benefits paid from the main unfunded schemes (ie including the NHS, teachers' and civil service schemes) is estimated to be 1.9% of GDP in 2015-16, falling to 1.4% of GDP in 2060-61.

So, under the arrangements as they currently stand, the cost of the main unfunded schemes is already projected to fall greatly. The Government has not said what percentage of GDP it considers to be sustainable in the long run.

Q5. Current projections of the cost of public service pensions show significant reductions in the short, medium and long term. What would the projections show once the Government's proposals were imposed?

A5. We do not know. We have asked the Government for these figures for many months but they have not been forthcoming. We know what the OBR's July 2011 figures are based on because the assumptions are described in its report (only CPI indexing of pensions is allowed for). However we do not know what the projected costs in 2060-61 would be if contribution increases, higher pension ages, change to career average etc. were all allowed for. Clearly the projections would show a much greater fall, probably to around 1.0% of GDP or even lower, by 2060-61.

Q6. Are these reforms required to ensure fairness between public sector workers and private sector workers?

A6. Prospect is well aware of the challenges facing private sector workers on pensions - it has as many members in the private sector as the public sector. It is certainly the case that private sector pension provision is far too poor for far too many workers. Prospect and other trade unions in the private sector work hard to defend and improve private sector pensions wherever possible. However, no private sector worker's pension will be improved by attacking public service pension provision.

Some of the issues on which public sector workers are campaigning - such as CPI indexation and increasing state pension age - directly impact on millions of private sector workers.

It is true that pension provision in the public sector is generally better than pension provision in the private sector (at least at lower and middle levels, at director level private sector provision can be very generous). However, pensions are only one element of remuneration and should not be compared in isolation. The Treasury's guidance on staff transfers states that "[public service] employee pay is somewhat lower than it would otherwise be, to reflect the value of the pension scheme". It is not fair to attack pension provision without taking into account pay and other terms and conditions.

In reaching its conclusions the Hutton Commission did no analysis of overall remuneration between equivalent jobs in the public and private sectors. Hence there is no basis for saying the reforms have to be enforced to ensure fairness, indeed attacking public service pension provision without any regard to public service pay is extremely unfair.

Q7. Were contributions not due to increase from April 2012 under the agreement with the previous Government anyway?

A7. Yes, some increases in member contributions in some schemes may have occurred from April 2012 anyway if the ‘cap and share' agreement had run its course.

However it is extremely unlikely that an average increase of 3.2% would have been required under ‘cap and share'. The evidence available to us shows that the current Government has gone far beyond what ‘cap and share' would have delivered in terms of member contribution increases (without even taking into account the detrimental changes to benefits being imposed). While it is impossible to say exactly what increases might have resulted from ‘cap and share' it is likely that increases would have been around 1% rather than 3%.

Even if increases of more than 1% were required it is most unlikely that they would have come in the form of contribution increases. This is because pay freezes are in operation throughout the public sector and affordability is a key issue for members (particularly where the member contribution rate is already 6% or so). Increases of 3% or more would almost certainly have been rejected in favour of equivalent benefit changes; this would have been a more appropriate way of dealing with cost pressures and would have resulted in fewer workers choosing to opt out of schemes.

The operation of ‘cap and share' was unilaterally suspended by the current Government.

Q8. Then what is the justification for the increase in contribution rates?

A8. In his terms of reference, Hutton was specifically asked whether he could justify making public sector workers contribute towards reducing the structural deficit.

Hutton stated that only an increase to member contributions would contribute towards reducing the structural deficit. He also stated that there was a justification, namely that the value of these schemes had already increased because people were living longer. Members could therefore be asked to pay more in respect of the increased value of the scheme they already enjoyed.

Prospect rejects Hutton's analysis as a simplistic and superficial attempt to support the Government's case. Just because people are living longer it does not automatically follow that pension schemes are more valuable. When the Principal Civil Service Pension Scheme was reviewed as at March 2007 the longevity assumptions were greatly strengthened. However the cost of the scheme to employers actually fell. This is because members were gradually retiring later and because pay restraint had reduced the expected level of pension awards. Had the March 2010 review of the scheme not been cancelled by the Government it would probably have shown a further reduction in cost despite continued strengthening of the longevity assumptions. So in spite of members being expected to live for years longer, the cost of the PCSPS might have fallen twice over a six-year period.

In any case Hutton did not say what level of increase in contributions might be appropriate. The choice of an average 3.2% increase was a political decision by the Chancellor.

Q9. The schemes appear to be sustainable. There is no basis for suggesting that changes are required to bring public sector workers into line with those in the private sector. Increases of 3% or more challenge the very viability of the schemes due to the risk of members opting out. So why is the Government seeking to impose this level of increase?

A9. Increases of 3.2% pose a number of challenges to the schemes and are not a sensible reform.

Hutton's terms of reference make it clear that the increase in contributions is simply a measure for reducing the Government's structural budget deficit. The level of 3.2% was chosen because it contributes the funds required (£2.8 billion) for the Government to meet its fiscal objectives.

In other words, the level of increase has nothing to do with the sustainability of the schemes or disparities in total remuneration between public and private sector workers. It's about raising money to meet the Government's fiscal targets. The Government has choices to make over how it meets its targets. It is illustrative that the Government is seeking to raise more money from its levy on members of public service pension schemes (£2.8 billion in 2014-15) than it does from its much vaunted bank levy (£2.7 billion in 2014-15).

Q10. I am paying additional contributions for ‘added years' or ‘added pension'. How am I affected?

A10. The extra contributions are in addition to your current level of contribution whatever that current rate.

Q11. I work part-time, how am I affected?

A11. You pay the extra contributions as a percentage of your actual earnings. However, in deciding the level of extra contributions, your full-time equivalent earnings are taken into account.

For example, if someone working 2.5 days a week had actual earnings of £20,000 then their extra contribution rate would be 1.6% (the rate for those with full-time earnings between £30,001 and £50,000) and this would be applied to actual earnings.

Q12. My pension scheme is a contractual benefit. Prospect should take the Government to court if it seeks to impose these changes.

A12. Prospect is taking a Judicial Review of the CPI decision alongside other trade unions and pensioner organisations. However proposals such as higher member contributions and higher pension ages cannot readily be resisted through the courts. Only members' collective strength will face down these challenges.

Q13. Why are you balloting while negotiations are ongoing?

A13. In reality very little progress has been made through the discussions to date. The Government has been very slow to provide basic statistical information that we have requested over many months. Without this information it is very difficult to have meaningful discussions. More important, the Government has already imposed the CPI switch that has greatly reduced the value of members' pensions. Now Government is consulting on how, not whether, member contribution increases should be applied. Bit by bit the Government is imposing the changes it wants to make. If members do not make a stand at this point we will soon find that all the changes have been imposed even as the talks continue. Prospect wants to achieve a reasonable, negotiated agreement and we will never walk away from the opportunity to discuss these issues. But the unsatisfactory discussions that have been dragging on for months are no reason to say members should not take action to resist changes that have already been imposed or are about to come into effect.

Q14. What do you hope to achieve on 30 November?

A14. It is important that Prospect members decisively endorse the Sector Executive's recommendation with a high turnout in the ballot and strong support for action on 30 November. On that day we hope that members will join with millions of other public sector workers in telling the Government that they will not accept the imposition of seriously detrimental changes to their pensions. A successful day of action will signal the strength of members' feelings and show the Government that meaningful discussions leading to agreed reforms are the only viable outcome for this process.

Q15. I am not a frontline worker, so taking action on 30 November will not have much effect because the public will not notice.

A15. 30 November is not about causing disruption to public services. It is about showing how strongly public sector workers feel about attacks on their pension provision. Every member voting in the ballot and taking action on 30 November is sending a powerful message to Government. Prospect members in particular lend the action a legitimacy that is disproportionate to their numbers because Government and independent commentators appreciate how reluctant they are to take action of this kind, and how seriously they must view the situation if they participate in the day of action.