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Q and A

NDA pensions Q&A

Please see a selection of frequently asked questions grouped by main topic below. If you have any questions that are not covered here please email Prospect at NDApensions@prospect.org.uk.

Process of consultation and reform

Rationale for proposals

Option 1 (the CARE option)

Option 2 (the CAP option)

Process of consultation and reform

What is Prospect’s position on the proposals?

Prospect is a democratic organisation and our formal response will be determined by the views of members. However, as you will have seen from correspondence about this, Prospect has told the NDA and the minister that the proposals are unacceptable and that we expect members to be resolutely opposed to them.

What is Prospect going to do about the proposals?

The first step is to help members understand the potential impact of the proposals and to get their initial views. The next step is to use the consultation period to put the best case to the NDA and to lobby MPs and ministers and any other relevant parties. Our strength lies in our membership so we will be asking you to carry out a number of actions to support these efforts. If and when final proposals emerge we will consult members about their opinion of them and about how they want to respond.

Will Prospect provide advice for members on responding to the consultation and lobbying MPs?

Yes. Please watch out for emails from Prospect and check the website for information about these and other actions you can take.

Many members in the pension schemes concerned are covered by pension protections enshrined in legislation (either the Electricity Act 1989 or the Energy Act 2004). Can the NDA legally implement either of these proposals?

If and when there are final proposals for change, Prospect will take legal advice on the potential merits of a challenge on any appropriate grounds (including in relation to the statutory pension protections). It is important that we do not sit back and do nothing because we are relying on pension protections though; this is because we cannot be certain what the legal advice will be and also because we have to be aware that statutory legal protections that were granted by an Act of Parliament can also potentially be removed by an Act of Parliament.

Which pension schemes are affected by these proposals?

The schemes affected are:

  • Final salary sections of the Combined Nuclear Pension Plan (CNPP)
  • Magnox Electric Group of the Electricity Supply Pension Scheme (ESPS)

Could there be a third option where members pay more to retain their current benefits?

We do not accept that the NDA or government has made a case for any detrimental changes to these pension schemes so we will not be advocating any member contribution increases at all. However, if, ultimately, some changes to benefits are eventually implemented then there are options for members to increase contributions to earn higher benefits.

Are we being asked to choose between the options?

The consultation is to seek views on both options to help shape how the pension schemes will be reformed. Our advice is to focus responses on the lack of a rationale for any changes to the schemes and the lack of justification for reneging on past pension promises to members. It is possible to express a preference for one option over another but, to the extent that anyone’s preferences are taken on board at all, this will influence the shape of any final reform only; there will not be two different reforms with the ability for members to choose the one that they prefer.

Option 2 (the CAP option) is proposed to be implemented from 1 April 2017. This is less than 3 months away. Can this be done?

Technically this timescale is possible within the statutory and other requirements for consultation. However we will express our opposition to rushing into reform in our response to the consultation.

I have heard that the government is taking away our right to an unreduced pension if made redundant at certain ages. Is that part of this consultation?

No. That is a separate issue (one that Prospect is also lobbying on) to this consultation.

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Rationale for proposals

Why is the NDA and the government proposing to reform these pension schemes?

The stated rationale is that public sector pension reform is necessary to make pension schemes fair, sustainable and affordable and that these pension schemes are within the scope of public sector pension reform.

Are these pension schemes public sector pension schemes?

No.

Were these pension schemes included in the terms of reference for Lord Hutton’s review of public sector pensions?

No.

Were these pension schemes covered by the Public Service Pensions Act 2013?

No.

On what basis was it decided that these pension schemes are within the scope of public sector pension reform?

That decision seems to have emerged from discussions between the NDA and Treasury.

Does that mean cost factors are driving this process?

Obviously we cannot know this for certain but that seems quite likely.

Hutton recommended that defined benefit pension provision be retained for employees in organisations affected by public sector pension reform. Does this mean the employers covered by this consultation will offer access to defined benefit pension schemes to those workers currently in defined contribution schemes?

No.

It appears that the NDA and the government are cherry picking the detrimental aspects of public sector pension reform and ignoring the elements that are attractive to the workforce. Is this the case?

That certainly seems to be the case.

If policy is to put pension schemes on a sustainable and affordable footing does that mean the cost of pension provision across the NDA estate is currently projected to rise uncontrollably?

No. Pension costs across the NDA estate are projected to fall significantly in the long term.

Are the long-term projected costs of pensions across the NDA estate significantly higher than for workforces subject to public sector pension reform?

No. The long-term projected costs of pensions across the NDA estate are lower than for workforces subject to public sector pension reform.

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Option 1 (the CARE option)

Would everyone in the pension schemes concerned be affected by the move to a CARE scheme option this option?

No. Anyone within 10 years of pension age on 1 April 2012 would retain the same benefits as currently (though they would be impacted by the proposed increase in member contributions of 3.2% of pay).

Under public sector pension reform members within 10 years of pension age at a specified date after the proposals were announced were protected from the benefit changes because they were too close to retirement to change their plans*. Why is this not the case for the CARE option?

* See quote from the Chief Secretary of the Treasury’s statement (2 November 2011):

“In addition, I have listened to the argument that those closest to retirement should not have to face any change at all.

That is the approach that we have taken in relation to increases to the State Pension Age over the years, and I think it is fair to apply that here too.

I can also announce that scheme negotiations will be given the flexibility, outside the cost ceiling, to deliver protection so that no-one within 10 years of retirement will see any change in when they can retire nor any decrease in the amount of pension they receive.”

A cut-off date of 1 April 2017 would seem more appropriate than the proposed cut-off date of 1 April 2012 to ensure consistency on this point and fairness for the members affected. The earlier cut-off date ensures more members are affected and greater savings are delivered.

The public sector pension reform process allowed for transitional arrangements for those who just missed out on protection because they were within 10 years of pension age. Have similar transitional arrangements been incorporated into the CARE option?

No. It would seem appropriate to have similar transitional arrangements for reasons of consistency and fairness. This would, of course, reduce the anticipated savings the reforms would deliver.

Under the public sector pension reform process the member contribution increases were phased in over three years. Is this the same for the CARE proposal?

No phasing in of the member contribution increase is proposed in the consultation document and we must presume none is planned. It would be more consistent and fairer to phase this increase in member contributions in over a period of three years but that would, of course, reduce the anticipated savings the reforms would deliver.

Will the member contribution increase under the CARE option be 3.2% for all members of the schemes?

The consultation document refers to a members contribution increases of “an average” of 3.2%. This leaves open the possibility of an across the board increase of 3.2% or increases that are tiered by earnings (with lower earners seeing increases of less than 3.2% and higher earners paying more) or some other method of implementing increases.   

With the CARE option the benefits earned before 1 April 2018 remain calculated on a final salary basis. What salary is used for this – the salary calculated on 1 April 2018 when members who are not covered by the protection move to the CARE scheme or the salary when I finally retire or leave the scheme?

The latter, the final salary calculated when you retire or leave the scheme. In this way the final salary link for benefits earned before the reform is implemented is retained.

Under the CARE option how is the career average earnings calculated?

Effectively this is calculated as the weighted average earnings while you were in the CARE scheme (ie from 1 April 2018) and not based on the average earnings over your entire career. (This description is a slight simplification of how the process operates in practice but it gives an accurate impression of how earnings are treated.)

Under the CARE option pension age would increase for people who are not protected. Does this mean I would have to work for longer?

No. The pension benefits earned before 1 April 2018 are protected and can be taken at the your current pension age unreduced. You could also take your CARE benefits at your current pension age but they would be reduced to reflect the higher pension age that would apply in the CARE scheme. So you are not forced to work for longer. However you may decide you have to work for longer in order to build up enough pension to be able to retire with a decent standard of living. It is most unlikely that the changes would mean that someone would have to work until their State Pension Age to compensate for the higher pension age and other benefit changes under the CARE option.

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Option 2 (the CAP option)

Who is covered by the CAP option?

All members of the two pension schemes covered by the consultation, there is no protection. As a rule of thumb the longer you have remaining as an active member of either scheme the greater the impact of the cap will be.

Will all pension be based on the capped salary?

No. Pension earned before 1 April 20017 will be based on your full salary and pension earned afterwards will be based on capped salary.

What is to stop the NDA and the government capping salary at a lower level than proposed in the consultation document?

Nothing besides our ability to respond collectively to any such threats.

Can any guarantees be put in place to prevent salary being capped at lower levels than proposed in the consultation document?

Possibly but the value of such guarantees will have been exposed as worthless if salary is capped in the first place.

Is it just annual pay increases that would be subject to the cap or would promotional pay increases be affected too?

All pay increases would be subject to the cap.

Will there be member contribution increases under the CAP option?

No.

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