Public Service Pensions Bill

Memorandum submitted by the National Union of Teachers (PSP 14)

Introduction

The purpose of this memorandum is to provide a commentary from the National Union of Teachers (NUT) on the Public Service Pensions Bill. The memorandum sets out the key proposals of importance to the Union and identifies to members of the Bill Committee areas where we believe amendments would be useful. This memorandum also expands upon some of the points raised by the NUT’s Deputy General Secretary in his oral evidence to the Committee on 6th November 2012.

In short the NUT has serious concerns about the Government's proposals for public sector pensions. The proposals to make teachers and other public servants work longer and pay more for their pensions and get less in return when they retire are excessive, given the reforms already implemented in 2007, and are a breach of agreements reached on those reforms. Furthermore the Bill provides for the Treasury being given excessive discretionary powers or power to make regulations.

Key concerns

Clause 8

Subsection (2) provides for the Treasury to reduce accrued pensions entitlements as a result of annual revaluation. The provision for revaluation of active members' accrued benefits is necessary due to the implementation of a career average basis for the schemes. The various scheme negotiations have established varying formulae for revaluation, ranging from a simple CPI link for the civil service scheme to an earnings link for the firefighters scheme. For pensions in payment and deferred benefits, revaluation is governed by the 1971 Pensions (Increase) Act. That Act - although recently controversial due to the Government's decision to move from RPI to CPI inflation as the basis of revaluation - does not provide for reductions in pensions entitlement should the formula yield a negative figure. The NUT believes that this possibility should be removed from the revaluation provisions of this Bill as well.

Clause 9

The Bill seeks to link the pension age in public sector pension schemes to the state pension age, other than for specified exceptions (the uniformed services). This was not a specific recommendation by the Hutton Commission, which recommended only that appropriate measures should be taken to manage longevity risk. The Treasury adopted this policy at a late stage in the process of scheme negotiations and, in doing so, banned individual Departments from negotiating any different provision - an action which confirmed that no agreement would be reached in respect of the Teachers' scheme where a formulation of "NPA = SPA minus 3 with a minimum of 65 " had been proposed by the D epartment f or E ducation . The Treasury policy is an extremely blunt instrument for managing longevity risk and does not provide any greater security against longevity risk than the previously proposed link for the Teachers' scheme. The NUT believes that it is unnecessary given other provisions within the Bill relating to control of costs and believes that this clause should be amended to permit scheme regulations to provide for scheme pension ages which are not specifically equal to the State pension age.

Clause 10

The NUT believes that clause 10 could be improved by including a requirement for quadrennial valuation of schemes. The current Teachers' scheme regulations provide for a quadrennial valuation of the scheme, although in consequence of the proposals to change the public sector schemes the valuation of the Teachers' scheme due as at 31 March 2008 (like some other scheme valuations) has not been undertaken. The NUT is concerned at the absence of any specific requirement on timing of valuations from this Bill and would like to see a binding provision, applying to all schemes, which would prevent any future decision not to undertake valuations as happened on this occasion.

Clauses 20-22

The NUT is opposed to this section of the Bill which allows for retrospective amendments to - and reduction of - pensions entitlements. The Union would like to see the Bill amended to protect public sector workers from any retrospective worsening of their pensions.

Members of private sector pension schemes are protected against detriment by section 67 of the 1995 Pensions Act which provides that benefits can only be changed if an actuary is willing to certify that the alternative benefits provided are actuarially equivalent and will not cause more than a small percentage of members to lose out. While that Act does not apply to public service pension schemes, it has previously been believed that the 1972 Superannuation Act offers at least some protection against retrospective changes. It should be noted that European law might also offer some protection for accrued pension entitlements as property rights but this could only be determined by litigation.

The NUT would welcome an amendment to the Bill that would introduce a specific provision giving members of public service pension schemes equivalent protection to that enjoyed by members of private sector schemes. Once pension benefits have been accrued, they should not be removed.

Additional information following oral evidence session

In his oral evidence to the Committee on 6 November, the NUT Deputy General Secretary expressed his concern that young teachers might not be able to afford to contribute to the pension scheme. The Government wants to increase every teacher’s pension contributions to an average 9.6% of pay by April 2014. This means that for each pound that a new teacher in 2014-15 earns above £21,000, the following deductions to be made:

 

Income tax: 20%

National Insurance: 12%

Student loan repayment: 9%

Pension contribution: 8.5% (Inner London) or 7.9% (rest of country).

 

The new teacher would therefore lose either 48.9% or 49.5% of each pound earned above £21,000. The NUT is concerned that the pension contribution is the only part of this which is optional and this may encourage new teachers to opt out of the TPS.

The NUT Deputy General Secretary also referred to analysis [1] conducted by the Union on payments into and out of the Teachers’ Pension Scheme since its inception in 1923. This analysis found that teachers and their employers have paid in £46.4bn more to the scheme in contributions than has been paid out in pensions, if the yearly surpluses / deficits are adjusted in line with GDP growth over time. In the absence of the latest Scheme valuation, teachers will continue to feel that the Government has had a long cheap loan from teachers, but now baulks at paying their pensions that are due.

Further information

The Union has drafted amendments to the Bill on each of the key concerns highlighted above. These can be sent to Committee members that are interested in tabling them.

November 2012


[1] http://www.teachers.org.uk/files/technical-note---tps-contribs-versus-payments-out.doc

Prepared 14th November 2012