Public Service Pensions Bill

Memorandum submitted by MOD Defence Internal Audit

(PSP 28)

Evidence for THE Parliamentary Debate ON THE PUBLIC SECTOR PENSION REFORM BILL HC BILL 70

1. INTRODUCTION

I am a civil servant who works for the Defence Internal Audit section of the MOD.

I am concerned about inadequacies in the Equality Impact Assessment for this Bill and non compliances with the 2010 Equality Act

2. SUMMARY

A. The Equality Impact Assessment produced in support of the Public Sector Pensions Reform Bill is not fit for purpose. It excludes the oldest 37% of staff from its assessment. The Equality Impact Assessment is rather lacking in content in respect of age discrimination.

B. The Public Sector Pensions Reform Bill is non compliant with the 2010 Equality Act because it discriminates on age in favour in staff currently within 10 years of their standard retirement date.

C. The Public Sector Pensions Reform Bill is non compliant with the 2010 Equality Act because it discriminates on age against younger staff who will have a higher standard pension age than older staff.

D. The Public Sector Pensions Reform Bill is non compliant with the 2010 Equality Act because no compensation arrangements are provided for staff who were unfairly required to join the Nuvos Pension Scheme from 2007 onwards.

3. DETAIL

A. Problems with the Equality Impact Assessment in respect of Age Discrimination Assessments

(1) Paragraph 1.13 of the Equality Impact Assessment states that staff within 10 years of their current normal pension age will not be considered as part of this Equality Impact Assessment .    Based on figures quoted in the Equality Impact Assessment , this excludes the oldest 37% of public sector staff. It is most unfair to exclude 37% of current staff from the Equality Impact Assessment, especially when they are all due to get preferential treatment under the Pension Reform Bill transitional arrangements.    This is just as unfair as if the Equality Impact Assessment had excluded all males from sex equality impact assessments or if it excluded all whites from race equality impact assessments.

(2) The Equality Impact Assessment provides very little factual information about the impact of the pension reforms across different age groups. Examples of areas where it could reasonably be expected to provide more information are:

· The Equality Impact Assessment does not specify what the 2010 Equality Act says about age discrimination. It does not make any assessment on whether or not the Pension Reform Bill and the associated new Pension Agreement comply with the relevant age related clauses which are specified in the 2010 Equality Act.

· The Equality Impact Assessment does not examine the financial impact of the pension reforms on staff of different ages.

· The Equality Impact Assessment does not examine how many extra years staff of different ages will have to work as a result of the pension reforms.

· Government ministers expressed a concern about staff having the opportunity to make other pension arrangements including Additional Voluntary Contributions, top up pensions, annuity purchases and other investments. The Equality Impact Assessment does not examine how much disposable income is available to staff of different ages or different salary levels. Nor does it examine how much staff currently spend on other pension arrangements or make an assessment as to how this spending pattern may change as a result of the new pension arrangements.

· The Equality Impact Assessment’ life expectancy at birth chart excludes older people born before 1966.   Based Equality Impact Assessment figures, this chart excludes the older 49% of currently employed public servants.

· The Equality Impact Assessment does not provide any charts or tables which examine "good health" life expectancy to see how long staff born in different years will be able to enjoy an active retirement .  

· The Equality Impact Assessment does not provide any charts or tables which examine what proportion of staff born in different years will be fit enough to carry on working to their standard pension age or even whether or not they will make it to the new state retirement age

B. Discrimination on age in favour in staff currently within 10 years of their standard retirement date.

(1) The 2010 Equality Act states that age is a protected characteristic.

(2) The Pension Reform Bill allows staff within 10 years of their current normal pension age to continue in their existing pension schemes until retirement. It allows staff between 10 and 13.5 years of their current normal pension age to continue in their existing pension schemes for up to 7 years longer than younger staff. The Equality Impact Assessment estimates that 49% of current staff will benefit from this preferential treatment. These transitional arrangements are clearly discrimination based solely on age which is not permitted under the 2010 Equality Act.

(3) The argument for having preferential transitional arrangements for older staff was that they would have less time than younger staff to make alternative pension arrangements including Additional Voluntary Contributions, top up pensions, annuity purchases and other investments. However the fairness of this argument is flawed because older staff within 10 years of the Standard Retirement Age will be much less affected by the pension reforms.


They will have up to 7 years worth of pension right accruals affected by the pension reforms compared with younger staff who may spend their whole career under the new pension arrangements. Therefore older staff have much less need for the transitional arrangements

(4) Many older staff with Standard Retirement Age of 60 will only need to work an extra year or to regain the same pension benefits as they would have got under the existing pension arrangements. By comparison younger staff under the age of 24 will have to work until they are 68 to get comparable pension benefits under the new pension arrangements.

(5) Should older staff be able to afford to purchase Additional Voluntary Contributions, top up pensions, annuity purchases and other investments to compensate for the loss of income under the new pension scheme arrange, the value of these purchase that they will require is proportionately much less than is required for younger staff. Hence older staff will require a much shorter investment period than younger staff in on order to make up for their respective income shortfalls.

(6) It is a reasonable assumption that staff with the lowest salaries are the staff with the least disposable income available for purchasing sufficient Additional Voluntary Contributions, top up pensions, annuity purchases and other investments needed to compensate for the loss of income under the new pension scheme arrangements. Salary is not a protected characteristic under the 2010 Equality Act. Therefore it would be much fairer and more legally compliant to provide the 7 year transitional protection to the 49% lowest paid staff instead.

C. Discrimination on age against younger staff who will have a higher standard pension age than older staff.

(1) The proposal in the new pension arrangements to link the Standard Pension Age to the State Pension Age is unfair because age is a protected characteristic under the 2010 Equality Act.

(2) Under the new pension arrangements, situations will arise where staff of different ages may join their department at similar times, be paid the same salary but they are simultaneously earning different pension benefits. This is because younger staff will be affected by future rises in the State Pension Age which will result in them receiving their pension for a shorter period than older staff.

(3) It is also contractually unfair to link pension benefit accruals to the Standard Pension Age at retirement because decisions to raise the State Pension Age may be taken after these pension benefits have been accrued.

(4) It would be much fairer to link pension benefit accruals to the State Pension Age in operation at the time these benefits are accrued instead of them being linked to State Pension Age in operation at the time of retirement.

D. Discrimination on age against certain new starters using the Civil Service Nuvos Pension Scheme.

(1) All staff joining the Civil Service since mid 2007 have been required to join the Nuvos pension scheme. They have not been allowed to join the Classic, Classic Plus and Premium pension schemes which have been run in parallel for Civil Service staff joining before mid 2007. This is discrimination based on length of service.

(2) The 2010 Equality Act places restrictions on discrimination based on length of service because it is a form of indirect discrimination linked to age. The text on discrimination based on length of service in the 2010 Equality Act is as follows:

"10 (1) It is not an age contravention for a person (A) to put a person (B) at a disadvantage when compared with another (C), in relation to the provision of a benefit, facility or service in so far as the disadvantage is because B has a shorter period of service than C.

10 (2) If B's period of service exceeds 5 years, A may rely on sub-paragraph (1) only if A reasonably believes that doing so fulfils a business need."

(3) The wording in the act clearly allows discrimination to happen during the first 5 years of service. However employers may only rely on this exemption beyond 5 years where there is a clear business need, for example pay scales for junior hospital doctors where it typical takes a junior doctor 8 years to work their way up to hospital consultant status. It would clearly be unreasonable and against the principles of the 2010 Equality Act for an employer to rely on this exemption beyond 5 years as cost saving measure.

(4) By the time the new Public Sector Pension Scheme arrangements come into place in 2015, some staff in the Nuvos pension scheme will have been discriminated on the basis of length of service for up to 8 years. Therefore they will have exceeded the 5 year discrimination limit allowed by the 2010 Equality Act. The fairest solution is to give those affected staff the opportunity to convert their pension accruals for years 6, 7 and 8 into either the Classic, Classic Plus and Premium pension schemes.

4 Recommendations:

A. The Equality Impact Assessment should be revised to cover 100% of public sector staff and to include meaningful analysis and statistics on age related aspects of the 2010 Equality Act. These revisions should be carried out before there is any further House of Commons debate on the Public Sector Pensions Reform Bill.

B. Special arrangements to delay starting the new pension scheme until 2022 should be offered to the 49% lowest paid staff instead of the 49% oldest staff.

C. The Standard Pension Age should be linked to the state pension age in operation at the time pension benefits are accrued.

D. Staff in the Civil Service Nuvos pension scheme should be offered the opportunity to convert their pension accruals for years 6, 7 and 8 of the Nuvos scheme into either the Classic, Classic Plus and Premium pension schemes.

November 2012

Prepared 23rd November 2012