Pension payments to rise by £1bn

28 July 2011 Last updated at 20:06 GMT The changes prompted a strike and a march in London on 30 June More than two million public service employees have been told they will pay ?1.1bn in extra contributions from April 2012, under government plans.

The payments form part of coalition plans to reduce its pensions bill.

Unions expressed anger about the timing of the latest announcement, accusing the government of undermining talks on the future of public sector pensions.

However, Chancellor George Osborne said the plans were a good deal for both the public sector and taxpayers.

NHS workers, teachers and civil servants will have to pay extra money into their pensions as the government looks to shave ?1.2bn off its pension bill next year.

Under the plans, the maximum rise will be 2.4 percentage points.

The increases are the first of three consecutive annual increases being planned by the government.

Anger

Unions expressed anger at the announcement.

"These talks are being put in jeopardy by the crude and naive tactics of government ministers who do not seem to understand the word negotiate," said Dave Prentis, general secretary of Unison.

Mark Serwotka, general secretary of the Public and Commercial Services Union which staged a walkout in June, said the proposals "made a mockery" of the ongoing talks.

"These highly detailed proposals show that the government has made its mind up and is not negotiating seriously," he said.

But Chancellor George Osborne defended the plans.

"They are a good deal for teachers, nurses and police officers, because they are going to get one of the best pensions you can get in our country, but it is also fair to taxpayers," he said.

"I think the trade unions and the government can work together on this and I certainly do not think it is a reason for anyone to go on strike."

The coalition also said pension contributions needed to rise as life expectancy continues to increase.

Burden shifted

The initial proposals affect 2.5 million people at first: NHS workers and teachers in England and Wales, and civil servants in England, Scotland and Wales.

Mark Serwotka of PCS: "It's unfair and we are determined to resist it"

Similar plans are in the offing for firefighters and the police, and possibly for local government staff as well.

The Fire Brigades Union said it was making preliminary arrangements for a strike ballot, warning that industrial action looked "increasingly likely" in the autumn.

The government has estimated that 750,000 of the NHS, civil service and teaching staff earning less than ?15,000 a year will not pay any extra contributions at all.

And many staff will now be asked to make smaller increases in their contributions than first thought.

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If my contributions go up again that leaves me with less money which will effectively mean a pay cut”

End Quote Robert Barton Social worker, Wiltshire In general it has been proposed that people earning between ?15,000 and ?21,000 (up from the previously suggested limit of ?18,000) will pay 0.6 percentage points more from next April.

However, in two of the schemes for which detailed proposals have now been published, this aspect has been watered down.

For teachers, the Department for Education, in its consultation response, has proposed that the 0.6 percentage point rise should apply to salaries up to ?26,000.

This is designed to deter younger, newly-qualified, teachers from leaving the scheme.

Russell Hobby, general secretary of the National Association of Head Teachers (NAHT) said: "The government had made up its mind a long time ago to raid the teachers pension scheme. We now have the privilege of commenting on how efficiently it plans to do so."

For the NHS scheme, the 0.6 percentage point rise will apply to those earning up to ?26,557.

This means the burden of raising the extra contributions in these two schemes has been shifted towards higher paid staff.

Maximum contributions

The government wants those on higher levels of pay to contribute up to 2.4 percentage points more in 2012-13.

This, for example, would take the total contribution to a maximum of 5.9% for civil servants earning more than ?60,000.

The highest paid NHS staff, such as doctors, now face a maximum contribution rate of 10.9% once they earn at least ?110,273.

The highest paid teachers would pay a maximum 8.8% of their salaries into their scheme once they earn ?112,000.

The additional contribution rates for civil servants, which have also been published, kick in at significantly lower salary levels than for teachers and NHS staff.

For example, at a salary of ?30,000, teachers will pay additional contributions of 0.9 percentage points, but civil servants will face additional contributions of 1.6 percentage points.

However, civil servants' existing contribution rates are generally low in comparison.

Continue reading the main story Annual salaryNowFrom 2012Annual salaryNowFrom 2012Annual salaryNow*From 2012*

Source: Cabinet Office, Department of Health, Department for Education

*Lower figure is for classic pension scheme and the higher figure for other schemes

More to come The Treasury said that in the next financial year the proposals would save ?530m in the NHS pension scheme, around ?300m from the teachers' scheme and ?180m in the civil service scheme.

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These are difficult times for everyone - public sector workers included. We are ensuring that those with the broadest shoulders will bear the greatest burden”

End Quote Danny Alexander Chief secretary to the Treasury The government is trying to implement the recommendations of Lord Hutton, the former Labour pensions minister.

His review of the public sector pension schemes, completed earlier this year, recommended higher contributions and the wholesale conversion of existing schemes from final-salary to career-average structures.

Chief Secretary to the Treasury Danny Alexander said the details of April's rising contribution rates would be subject to 12 weeks of consultation, and added that they ensured that the government's contributions would be kept under control.

"These are difficult times for everyone - public sector workers included. We are ensuring that those with the broadest shoulders will bear the greatest burden," he said.

However, the union representing senior civil servants said the plans for contributions were "completely unjustified".

"These negotiations will be complex and difficult. However, if we are not able to reach agreement then industrial action is possible," said Jonathan Baume, the general secretary of the FDA union.

Labour said that leaking the information to newspapers before the official announcement could affect the outcome of those talks.

"By once again acting in a rash and irresponsible manner ministers seem to be more interested in provoking confrontation with public sector workers than sensible negotiation," said Angela Eagle, shadow chief secretary to the Treasury.

"Making arbitrary announcements through the newspapers in the middle of talks with the trade unions will do nothing to avoid the industrial action nobody wants to see."

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Public pension liabilities rise

13 July 2011 Last updated at 10:43 GMT The report is designed to give a more accurate picture of the liabilities facing future generations The UK's total liability for funding public sector pensions has reached ?1.13 trillion, according to official data.

The figure, for the end of March 2010, is ?332bn higher than the previous year, although ?260bn of the rise is due to a fall in bond yields.

Ministers are expected to use the data to reinforce their argument that pensions must be reformed.

The data was published by the Office for Budget Responsibility.

The OBR report also disclosed that the total liabilities for Private Finance Initiative contracts were about ?40bn, or 2.9% of GDP, as of March 2010.

Only ?5.1bn of these were on the public sector balance sheet in the National Accounts.

Publication of the first OBR Fiscal Sustainability Report is designed to give a more accurate picture of UK liabilities that that have been built up for future generations.

Future payments

Most public servants, with the exception of local government staff and university lecturers, are members of unfunded pension schemes in which the pensions are paid for out of general taxation.

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If you're the kind of person that likes a good fiscal horror story, you'll find plenty of scary sounding numbers in today's report”

End Quote Stephanie Flanders Economics editor, BBC News The OBR's figure for pension liabilities, at ?1.13 trillion, is an estimate of the stock of assets the government would need now, if an investment fund had to be established to generate the cash to make all the future pubic sector pension payments.

The OBR makes that point that its calculation of the taxpayers total liability to pay public sector pensions "had nothing to do with changes in the size of prospective pension payments".

Instead, its calculation is heavily influenced by a recent government decision to assume that, in theory, it would need more assets than before to fund the pensions.

The OBR points out that if future pension payments are compared to the size of the UK's total economic output (gross domestic product) the cash value of public sector pensions will probably fall from 2% of GDP in 2015-16 to 1.4% in 2060-61.

"These costs fall as a result of the decision to up-rate pensions in payment by CPI rather than RPI, the current pay freeze and planned workforce reductions," the OBR said.

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Low-paid 'face pension poverty'

22 June 2011 Last updated at 11:02 GMT Some people are relying on the state to fund their retirement Low earners face "potential poverty" in old age because they are not building up pensions or savings to supplement the state pension, a report has warned.

Only 16% of men and 27% of women employed full-time on less than ?300 a week are in a pension scheme, said the Office for National Statistics (ONS).

Its latest Pension Trends report said that many people are "stretched" by the cost of living and are unable to save.

Participation in private sector pension schemes is waning, the ONS adds.

In 1997, 52% of male employees and 37% of female employees belonged to a pension scheme in the private sector.

But by 2010, this had fallen to 39% of male employees and 28% of female employees.

Savings gap

Full-time self-employed men are also now far less likely to be in a pension scheme, falling from 64% in 1998-99 to 38% in 2010.

But public sector employees have not been turning their back on pension provision in the same way. From 1997 to 2010, the proportion of male employees in the public sector belonging to a pension scheme remained unchanged at 87%, while for women, it went up from 75% to 82%.

The ONS report comes amid widespread concern about the failure of workers to save enough for their old age, particular among younger age groups.

Earlier this month, a survey by Scottish Widows, which is itself a pension provider, indicated that 59% of those aged over 50 were preparing financially for their retirement, compared with 47% of those aged 30 to 50.

Overall, some 49% of those surveyed in the Scottish Widows report were considered to be not making adequate provision for their retirement - defined as saving at least 12% of earnings a year.

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Government sticks to pension plan

20 June 2011 Last updated at 21:28 GMT Mr Duncan Smith opens the debate in the Commons on the Pensions Bill

The government will press ahead with plans to raise the state pension age for women but ministers have promised to look at "transitional" arrangements.

The coalition wants to raise the pension age for women from 60 to 65 by 2018 as a prelude to both female and male pension ages rising to 66 in 2020.

Critics say 330,000 women face working up to two years longer before retiring as a result of the proposals.

The coalition won a Commons vote on the plans by a majority of 70.

MPs voted to give a second reading to the Pensions Bill by 302 votes to 232.

During a Commons debate on the proposals, Work and Pensions Secretary Iain Duncan Smith insisted the coalition would not waver from its commitment to equalise the state pension age in 2018.

He told MPs: "Responsible government is not always easy government. It involves commitment, tough decisions and a willingness to stay the course.

But he said he was "willing to work to get this transition right" amid concerns over the "relatively small number of women" set to be disadvantaged.

'Tough decisions' Delaying the move to 66 until 2022 would cost the taxpayer ?10bn, which would be an "unfair financial burden borne disproportionately by the next generation", he added.

Last year, Chancellor George Osborne announced plans to accelerate the rate at which women's pension age would rise to equal that of men, currently 65.

The previous Labour government had agreed to achieve equalisation by April 2020, but the coalition's plans will see it achieved by November 2018.

Ministers will then use this extra time to raise the pension age to 66 for everyone.

The critics say many women affected by the proposals will have to wait between 18 months and two years longer than expected before they get their state pensions. They also say the changes are unfair as some women are being given as little as five years' notice of the changes.

More than 170 MPs have signed a Commons motion calling for a rethink over the plans, including both Conservative and Liberal Democrat backbenchers.

Lorely Burt, chair of the Lib Dem parliamentary party, said those affected would not have time to plan their retirement and many would be "financially a great deal worse off".

'Careers interrupted'

For Labour, shadow work and pensions secretary Liam Byrne said the government's plans had thrown the retirement plans of thousands of women into chaos.

Continue reading the main story Norman Smith Chief political correspondent, BBC Radio 4

The government finds itself in a bind over giving in to pressure to slow down the changes in pension age for women.

The problem is they've had to perform so many U-turns recently - health, sentencing, forests, etc - it is becoming a defining character of the coalition.

There must also be a concern that to backtrack over women's pensions would also be seen as a sign of weakness at a time when ministers are seeking to square up to the unions over public sector pensions.

And yet politically there is little sense in finding yourself lined up against well regarded age charities and further exacerbating tensions within the coalition - for a problem that only involves a comparatively small number of women.

It may be too that with the possible threat of legal action ministers have no option but to pause and re-think.

Certainly the government's critics are confident that whatever the government is saying now - it will eventually have to apply the handbrake.

"Women in their late 50s will have earned less over their lifetime, they have lower state pensions and private savings than men, many of them are unable to join a workplace pension and have interrupted careers to look after their family, many will have stood down from jobs on the understanding they would get that state pension early.

"What on earth are these women supposed to do with the measures set out in this Bill?"

James Gray was among Tory MPs to urge the coalition to think again.

"Going around the corridors and tea rooms in Westminster talking to Tories, Lib Dems and of course Labour MPs, they are saying this is an injustice being done to a small number of people," he said.

Meanwhile, Ros Altmann, director general of over-50s organisation Saga and a former government adviser on pensions, said ministers could face a costly legal challenge if they did not make changes.

"The current plans are unfair and may, indeed, be illegal in public law terms, since they clearly do not give women adequate notice of the large changes in pension age that they face."

Ahead of the debate, Prime Minister David Cameron appeared to get his own policy on pensions wrong in an interview with BBC Radio 2 - suggesting the retirement age will move to 66 in 2018.

The prime minister's official spokesman said Mr Cameron was merely saying the process towards 66 for men and women begins in 2018 but will be complete by 2020.

The Commons debate comes as union leaders are threatening industrial action over the government's proposals for public sector employees to work longer and pay more for less generous entitlements in retirement.

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Minister denies pension 'assault'

17 June 2011 Last updated at 17:04 GMT Danny Alexander: "I think that's a very fair and balanced offer"

Treasury minister Danny Alexander has said plans for public sector pensions will "protect them for the long term".

In a speech in London he said proposals were "not an assault" on pensions and accused some unions of spreading "scare stories" about government plans.

Contributions will rise and some people will have to work for longer but the low paid would be protected, he said.

But unions said the timing of the speech, while they negotiate over changes, was "deeply inflammatory".

The two sides have been holding negotiations over pensions but tensions have risen in recent days after unions representing up to 750,000 public sector workers voted to strike on 30 June.

On Friday the National Association of Head Teachers said it would also ballot its members about striking over pension cuts.

Chief Secretary to the Treasury Mr Alexander said he was making the speech on Friday because the issue had been getting "a lot of public attention" and accused a minority of unions "hell bent on premature strike action" of misrepresenting the government's position.

Continue reading the main story Sector Employee contribution Pension age

*Depending on scheme. Source: IPSPC

In his speech he confirmed the government would adopt many of the recommendations on pension reform made in the Hutton report in March.

He acknowledged the issue of pension was "sensitive", particularly at a time of widespread job cuts and a pay freeze across the public sector, but said public servants could not be "insulated" from the economic pressures facing society as a whole.

He said the government was proposing that public sector workers - bar the armed forces, police and fire service - would receive their occupational pension at the same time as the state pension in future.

Many can currently receive a full pension at 60. The state pension age is due to rise to 66 for both men and women by April 2020.

Under government plans, workers - on average - would have to pay 3.2% more in annual pension contributions phased in between 2012 and 2014.

But low-paid public sector workers on less than ?15,000 would not face any increase in contributions and those earning less than ?18,000 would have their contributions capped at 1.5%.

And he insisted all pension benefits earned before any reforms are introduced - including retirement ages and final salary benefits - would be protected.

In his final report in March, former Labour cabinet minister Lord Hutton concluded there was a "clear need for reform".

'Best deal'

He rejected any suggestion that public sector pensions were "gold-plated" but said in order to make them affordable in future, millions of employees should work longer, receive less and have their pensions linked to career average earnings, rather than final salaries.

Continue reading the main story Ross Hawkins Political correspondent, BBC News

After months of negotiations with trade unions behind closed doors, the government feared its message was being misrepresented and wanted to make its case direct to the public.

But as news of the speech emerged last night, union leaders were furious.

It was not the eye-catching language referring to some as "hell bent" on premature strikes that most angered them.

It was the clear statement of detailed policy that unions felt undermined negotiations.

While Danny Alexander characterised his plans as proposals, the government is understood to regard them as the core principles of any package.

It points out the basis of reform has long been established, in Lord Hutton's review of pensions and earlier Treasury announcements.

Privately, some in Whitehall regard the trade union reaction as predictable sabre rattling.

But union leaders argue this speech has left much less room for negotiation, and made widespread industrial action more likely.

Mr Alexander suggested the government's offer, based on the Hutton recommendations, was "by far the best likely to be on the table for years to come" and it was "unjustifiable to ask the taxpayer to work longer and pay more so that public sector workers can retire earlier and receive more themselves".

"This is not an assault on public sector pensions but an attempt to protect them for the long term," he stressed.

He urged union leaders to re-engage in what had been "constructive" talks - suggesting there was a "great deal" to discuss on transitional arrangements to the new system and support for local government workers, many of whom are contracted out to the private sector.

"I think engaging in this conversation we are having is the best way rather than going to the barricades," he said.

But Brian Strutton, of the GMB union, said he was worried Mr Alexander was "determined" to drive the plans through irrespective of union backing.

He told the minister: "All of the items you have spoken about you presented to us a couple of weeks ago as discussion points. Today you present them as your formal proposals in the public domain outside of our negotiating process.

"How are you going to convince me that our negotiations are still alive and you are not actually almost scuppering them today?".

TUC General Secretary Brendan Barber added: "At such a critical time in complex negotiations this is a deeply inflammatory public intervention."

'Flawed'

And Chris Keates, head of the largest teachers' union, NASUWT, accused Mr Alexander of "political game playing".

"It is a flawed, high-risk strategy which has the potential to undermine confidence in the negotiations at a time when some progress was being made and there are still many crucial issues to be debated," she said.

Labour leader Ed Miliband said the government was "hopelessly mismanaging" the issue, accusing it of pre-empting the findings of the Hutton report and then "shouting from the rooftops" at workers.

"What people want the government to do is to get round the table and sort this out on the basis of negotiation not on the basis of megaphone diplomacy," he said.

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Unison warns of pension strikes

18 June 2011 Last updated at 01:40 GMT Many Unison members work in the NHS The leader of Britain's biggest trade union says public sector workers could mount the biggest industrial action campaign since the General Strike.

Unison's Dave Prentis said the unions were prepared for "sustained and indefinite" strikes in protest at the government's pension plans.

The government said on Friday the pension deal on offer was the best the unions would get for many years.

Mr Prentis told The Guardian he still hoped to negotiate a settlement.

The Chief Secretary of the Treasury, Danny Alexander, said unions would make a "colossal mistake" if they rejected the coalition government's plan.

The BBC's political correspondent Ben Wright said: "Privately, talks are continuing between the trade unions and the Treasury about the government's proposals but publicly the two sides are locked in a war of words."

The government wants to reform public sector pensions - meaning a later retirement age and higher contributions for most workers - and claims the current pension system is unaffordable in the long-term.

Continue reading the main story Sector Employee contribution Pension age

*Depending on scheme. Source: IPSPC

Mr Alexander said the government was proposing public sector workers - bar the armed forces, police and fire service - would receive their occupational pension at the same time as the state pension in future.

Many can currently receive a full pension at 60. The state pension age is due to rise to 66 for both men and women by April 2020.

Teachers' unions in England and Wales have already voted to strike on 30 June to protect their pensions.

The strike by the National Union of Teachers (NUT) and the Association of Teachers and Lecturers (ATL) will disrupt thousands of schools.

Unison has 1.3 million members and they have not yet been balloted on industrial action.

Mr Prentis said if strikes did happen they would be the biggest since the General Strike of 1926 and, unlike the miners' strike in 1984/5, the unions would win.

Mr Alexander claimed the unions were "hell bent" on strikes

Unison has members working for local authorities, the NHS, colleges and the police.

Public sector workers are already facing heavy job cuts and a pay freeze.

Mr Prentis said: "I strongly believe that one day of industrial action will not change anyone's mind in government... we are prepared for rolling action over an indefinite period."

He also called on the Labour Party to support Unison's battle against the pension reforms.

Mr Prentis, whose union is affiliated to Labour, said: "We want our Labour Party to be the voice of opposition. We're worried that some of the senior people in the party still have to make statements as if they are in power, not opposition.

"If the Labour Party stays quiet that will be an issue," he added.

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Government pension policy queried

26 May 2011 Last updated at 13:06 GMT Lord Hutton recently suggested further big changes to public sector pension schemes A committee of MPs has criticised the government's formulation of public sector pension policy.

The public accounts committee says a key feature of changes announced three years ago has yet to start.

Known as "cost-sharing and capping", it has been delayed with no firm implementation date.

The MPs say this undermines government claims that the cost of pensions for civil servants, NHS staff and teachers will be cut substantially.

'On hold'

The Treasury told the MPs that changes brought in during 2007-08 would limit the cost of these three big pension schemes over the next 50 years to 1% of the UK's GDP.

That would lead to a saving of ?67bn over that time, which the committee said would be a significant achievement.

However, about 60% of that predicted saving was due to come from cost-sharing and capping.

The policy would involve putting a ceiling on any further increase in pension costs to employers, which would lead to a big increase in staff contributions, or a cut in their benefits.

Margaret Hodge, chair of the Committee of Public Accounts, said: "The Treasury expects the majority of savings to come from cost sharing and capping, a reform designed to ensure that employees bear a greater share of future costs."

"However, implementation has been deferred because of the Treasury's discount rate review, and remains on hold while the government consults on the recommendations put forward by the Hutton Commission," she added.

Changes achieved

Two of the three main changes agreed three years ago have been brought in.

These were raising the normal retirement age for new joiners from 60 to 65, and increasing employee contributions for teachers and NHS staff.

More money will be saved by the more recent decision in 2010 to change the index for inflation-proofing in the pension schemes from RPI to slower-growing CPI.

Further big changes, such as switching most of the public service pension schemes from a final-salary basis to a career-average one, and raising staff contributions, have recently been recommended by Lord Hutton's public service pension commission.

Unaffordable?

Teachers' trade unions seized on another aspect of the MPs' report.

The committee said that Treasury officials had failed to explain exactly how they had decided what level of public pension spending was affordable or unaffordable.

"Officials appeared to define affordability on the basis of public perception rather than judgement on the cost in relation to either GDP or total public spending," the MPs' report said.

Christine Blower, general secretary of the National Union of Teachers, said: "The committee is right to criticise the government for proposing further changes without even having considered what is affordable."

"This is a policy based on nothing short of false assumption and spin," she added.

Chris Keates, general secretary of the NASUWT, another teachers' union, said: "This damming report highlights the Treasury's failure to have even the most basic figures in place on which to base its proposals for worsening public service pensions."

Russell Hobby, general secretary of the NAHT, said the government had been disingenuous in claiming that pension costs were unaffordable.

"To move to make changes to the pension scheme for teachers when the case for change is unproven is reckless in the extreme," he said.

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Minister attacks pension transfer

23 May 2011 Last updated at 09:57 GMT The Pensions Minister Steve Webb says he may ban pension transfer incentives The Pensions Minister Steve Webb says employers must stop tricking people into giving up valuable pension rights.

He is worried about the increasing use of cash incentives to lure people into moving their pensions elsewhere, or to give up inflation proofing.

He will warn pension industry representatives, at a private meeting, that he may ban these practices.

The Pensions Regulator has already warned several times about the perils of such inducements.

In 2007, 2008 and 2009 the regulator issued guidance to pension scheme trustees, warning them to assume that transfer incentive schemes were probably not in the interests of scheme members.

However they appear to have become more common as companies have tried to crystallize or offload some of the costs of running their schemes.

"People do not understand what they are doing and in many cases are making the wrong choice," Mr Webb told the BBC.

"If people are giving up good pension rights, at a price that isn't ultimately fair to them that is not acceptable," he added.

Limited powers

Despite the concern of the regulator and now the government, there is little that can be done at the moment by trustees or anyone else to stop employers making these inducements.

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Compound interest means their pension could fall by a quarter or more if they give up inflation protection”

End Quote Steve Webb Pensions Minister The offers may operate outside the rules of a scheme, thus eliminating the power of the trustees to act, and may not break any laws.

The incentives can come in a variety of different forms.

They may be enhancements to transfer values, or straight cash payments, to those who have left employment but yet to retire, to move their deferred pensions elsewhere.

Or they can be offers of cash or enhanced pensions, in return for giving up future inflation proofing.

"[This] can look like a good deal when you are offered a cash lump sum, but people forget they will be retired for 20 or 30 years - compound interest means their pension could fall by a quarter or more if they give up inflation protection," said Mr Webb, the Lib Dem MP for Thornbury and Yate.

The employers' organisation the CBI said it was wrong to believe that all transfer incentives were bad.

"The Pensions Regulator would be best bearing down on situations where it's clear that transfer offers are not in a pension holder's interests, or when either poor or no independent advice has been offered," the CBI said.

"The deal many policyholders get from good [transfer incentive] offers is often attractive," it added.

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