NIPSA Submits Evidence to Pensions Commission

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04 January 2011


1.1       NIPSA is Northern Ireland’s largest trade union representing 46,000 members employed in the Northern Ireland Civil Service, Non Departmental Public Bodies, Public Services, Local Government and the Community/Voluntary Sector.

1.2       With regard to the Public Service Pension Scheme coverage of the Commission, NIPSA has membership as follows:

- Principal Civil Service Pension Scheme Northern Ireland (PCSPSNI)   

   circa 21,000 members

- Health and Personal Social Services Northern Ireland Pension Scheme  

  (HPSS) circa 9,000 members

      - Northern Ireland Local Government Officers Superannuation Scheme

          (NILGOSC) circa 15,000 members.


1.3       In addition to the 45,000 active members of the above schemes NIPSA has retired members in all of the schemes, as well as former members holding deferred member rights in the schemes.


1.4       With regard to the specific Northern Ireland schemes these are primarily based upon the principle of parity with the relevant Great Britain scheme e.g. NILGOSC and the Local Government Pension Scheme. The provision of parity is based on specific legislation and/or contractual entitlements.


1.5       NIPSA was part of the trade union delegation that met with Lord Hutton on his Belfast visit and NIPSA officials have raised issues relating to the work of the Commission in other forums e.g. NAPF Local Authority Forum on the 12 November. On these occasions Lord Hutton has been specific that his work does not extend per-se to Northern Ireland and that any decision to action recommendations is one for the Northern Ireland Executive.


1.6       NIPSA acknowledges the very precise point being made by Lord Hutton but would point out that the schemes are in the main by-analogy versions of GB schemes provided for in legislation and/or contracts of employment and therefore the Commission’s recommendations are liable to follow through to Northern Ireland.


1.7       Likewise the impact of decisions such as the move from RPI to CPI for indexing, the pension tax changes and the public sector pay freezes all have impacted on the pension provision for active/deferred members and pensioner members of public service pension schemes within Northern Ireland.


1.8       NIPSA made a detailed submission to the first call for evidence and has provided a detailed briefing on the Phase I Report of the Commission; this is available from the NIPSA website at Campaign/PublicServices-Pensions-Independent-Commission-Interim-Report-NIPSA-Briefing’


2          OVERVIEW


2.1       NIPSA was disappointed with the overall thrust and recommendations contained in the Commission’s Interim Report. Whilst NIPSA welcomed the commitment to retaining defined benefit pension schemes and the dismissal of the myth that public service pension schemes are ‘gold-plated’, we are concerned that it paves the way for further adverse changes to public sector pension provision.


2.2       The Interim Report correctly acknowledges the very considerable disimprovements over the past decade in private sector pension provision but it does not go far enough to put the emphasis on the need for these to be improved. It is in this area that Government is exposed, on the one hand to major state intervention to bolster wholly inadequate levels of occupational pension and on the other hand it shores up the massive greed and tax exploitation by the top 1% of Directors/Senior Managers in respect of their pension provisions.


2.3       The Interim Report at Chapter 5 covers the issues of adequacy and fairness. NIPSA considers this to be a key issue, including the question of equality; it is therefore more than disappointing that there is neither any evidence nor call for full equality proofing of either the Interim Report or the Commission’s final recommendations.


2.4       As with the point made at 2.2 above on state subvention i.e. via payment of pension credit the Interim Report at paras 5.2-5.7 recognises, to a point, this issue but fails to fully address the matter. NIPSA does not believe that the Report’s recommendations and the actions of the Government, especially over indexation will do anything to improve the inadequate levels of pension provision.


2.5       NIPSA is very concerned with the Interim Report’s comments and recommendations in respect of ‘Fair Deal’ and totally rejects the content of Chapter 6.


2.6       It is noted by NIPSA that the Government has confirmed its commitment to auto-enrolment, albeit it has been delayed to 2012 and will be introduced on a longer phased basis. NIPSA would question the value of this against the very likely high level of public sector pension scheme membership withdrawals due to the acceptance by the Government of the Interim Report recommendation to increase employee contributions.


2.7       The impact of the Interim Report’s recommendations on employee contribution increases allied to the severely damaging indexation changes at a time when public servants’ pay and job security is under severe attack, will result in very significant withdrawals from the pension schemes. This will not only damage the schemes and also place greater demand on state subvention with payment of pension credit going forward but will also do considerable damage to any prospect of improving the standard of living and adequacy of pensions for public sector pensioners.


2.8       NIPSA would wish to reiterate what was said in our original submission and in particular to point out that we do not accept the need for changes to public sector pension schemes due to the Government’s obsession with what they claim is the unacceptable deficit of both the public finances and the funding of public service pension schemes.


2.9       NIPSA does not accept the basis of these claims nor the assault on both public services and public servants. NIPSA fully endorses para 2.11 of our first phase submission i.e.


            “The “fiscal challenges ahead” are not as a consequence of public service staffing numbers, pay or pension costs but as a direct result of the fiscal and economic crisis created by the banking and financial institutions which Government was at least complicit in and then bailed out. It is unacceptable to NIPSA for Government to attack and sacrifice public service pensions to part pay for this economic mismanagement”.





3.1       As detailed at 1.2 above NIPSA has circa 15,000 members in the Northern Ireland Local Government Offices Superannuation Scheme (NILGOSC), the NI version of the LGPS and hence a funded scheme.


3.2       The remaining NIPSA membership are in pay-as-you-go schemes, mirroring the Principal Civil Service Pension Scheme Northern Ireland (PCSPSNI) or the Health and Personal Social Services Northern Ireland Pension Scheme (HPSS)


3.3       NIPSA has considered the comments of the NILGOSC Committee and the Trade Union Side of the National Joint Council (NJC) for Local Government Employees; in respect of both assessment of the Commissions Interim Report and also the respective submissions to this second call for evidence. NIPSA would broadly endorse the points made by both with regard to the very different position of the funded schemes viz-a-viz the Pay-As-You-Go schemes.


3.4       NIPSA would remind the Commission of the points made in the Annex to our original submission, on this issue.


3.5       NIPSA welcomed the assessment in the Interim Report at paras 4.76 – 4.95 (inc) of the differences between the LGPS and the Pay-As-You-Go Schemes. In addition NIPSA fully supported the view as expressed at 4.93 that there should be no change to the status/arrangements for the LGPS.


3.6       It is therefore more than disappointing that despite the clear differences the LGPS remains within the scope of the Commission. In this regard NIPSA would endorse the points made by both the NJC Trade Union Side and NILGOSC that the LGPS should have been excluded or at the very least subject to a wholly separate assessment.




4.1       In the comments below NIPSA seeks to address the specific questions as set out in the Commission’s call for evidence for the final report, as per the letter of 1 November 2010.


4.2       The points made below supplement the views already articulated by NIPSA in the original submission, the detailed assessment briefing of the Interim Report (see 1.8 above) and in the points raised by NIPSA Representatives directly to Lord Hutton (see 1.5 above).


4.3       Scheme Design (Q1)


4.3.1   NIPSA welcomed the Interim Report recommendation to retain Defined

            Benefit Schemes as the basis for public sector pension provision.


4.3.2   NIPSA is opposed to any move away from DB, even as a top-up part of a hybrid scheme. If there is considered to be a need to deal with very high earners then there should be an open debate between the employers and the unions on a suitable capping level.


4.3.3   The various options will do nothing to address the more serious issue of the low value of public service pensions for the vast majority of scheme members be they current, deferred or pensioner members.


4.3.4   Any move to hybrid or more complex arrangements will add to scheme administration costs, something the report wishes to see reduced rather than increased. Furthermore, any added complexity will reduce transparency and make it all the more difficult for scheme members to understand and value.


4.3.5   NIPSA does not rule out assessment of a career average scheme but would have to question the robustness of such existing schemes in light of the very serious detrimental impact the RPI to CPI indexation change has had on the value of career average pensions such as NUVOS



4.4       Risk-Sharing (Qs 2-9)


4.4.1   NIPSA rejects the statement in the Commission’s letter of 1 November that “in final salary schemes employers bear most risks (and ultimately in the case of public service schemes, taxpayers)”. The move from RPI to CPI, associated with very considerable contribution increases with more to come and other benefit changes such as the virtual elimination in some schemes of pension enhancement for redundancy all make the risk sharing an issue for employees as well as others.


4.4.2   The Public Service Pension Reforms of circa 5 years ago included across the piste the principle of cost-sharing. Detailed negotiations are ongoing within the LGPS, including the NILGOSC Scheme in Northern Ireland, and other public sector schemes on the methodology, assessment, timing and degree of cost sharing. To not permit the out-workings of these discussions is unacceptable as they are part of the fundamental negotiated reforms to public service pension schemes.


4.4.3   The change to the pensionable age for retirement is again an issue addressed by schemes which has yet in the main to be out-worked from the last agreed reforms.   There has been no assessment made of the wider economic impact of making people work longer to either draw the state pension and/or the occupational pension. This adversely impacts on the labour market with reduced opportunities for the unemployed, education leavers or returnees to the Labour market. It also could well have an adverse impact on the health of workers and thus adverse implications for the Health Service.


4.4.4   Q2 – as per 4.4.1 – 4.4.3 above Scheme members already bear an increasing degree of risk. There can be no justification for any additional burdens when all of this is taken into account.


4.4.5   Q3 – The move to CPI indexation, introduced without any consultation, has already eroded pension values. NIPSA would press for either a return to RPI or for negotiations with the unions to see if there are more viable forms of indexation. Setting ever increasing pension ages needs to be considered in a much wider context, including assessment of issues such as labour market impact, health and social care implications. There should be serious consideration given to providing for a flexible approach to the retirement age within a 5 to 10 year period so that individuals can choose what is best for them. The actuarial impact is likely to be neutral, especially when linked to the forthcoming changes in the default age. 


            On indexation for career average the point made directly above is valid, see also comments at 4.3.5.


4.4.6   Q4 – The private sector position is fairly irrelevant, given the massive withdrawal and closure of DB schemes. In the main all risk is now on employees.


4.4.7   Q5 – The interim report covered this point and the question is nugatory given the very limited time available for production of the final report.


4.4.8   Q6 – The real split is unclear and moving and is at this point difficult to accurately determine in view of recent changes and forthcoming issues such as:-


·         Roll out cost sharing;

·         Increased employee contributions;

·         Full assessment of the RPI to CPI indexation changes;

·         Schemes triennial review publication;

·         Consultation on the appropriate discount rate;

·         Changes to retirement age; and

·         Potential changes to benefit structure


In addition all of these changes, especially those falling directly on employees will also impact on scheme membership and the consequential cost impact of this. A fair system would at the very most look at on average a 2/3 employer 1/3 employee contribution ratio, but with potential on the employee side to be variable depending upon salary levels.


4.4.9   Q7 – If the approach taken as proposed at 4.4.5 was applied  i.e   the   

           flexible decade of Retirement this could mitigate against the need for differential treatment. There are liable to be justifications for lower retirement ages in certain occupations such as firefighters.


4.4.10Q8 – Schemes should provide a common benefit structure and via salary contribution banding those who are deemed to benefit more will contribute more. NIPSA accepts that there is a case for consideration with regard to a salary pension ceiling, however considerable research is necessary to determine what level that should be at.


4.4.11Q9 – This is linked to the response at 4.4.5 and 4.4.7 above. There is also the issue of a fair transitional arrangement to any increase in scheme pension ages, as most people will have planned their arrangements especially their own economic position based on current expected retirement dates.




4.5.1   The Interim Report makes reference to the Turner Report and it’s recommendations on adequate income in retirement. For the very vast majority of pensioners be they in receipt of public service pensions, private sector pensions or solely dependent upon the state pension the fact is that the Turner proposals are vastly removed from the reality of low pensioner income.


4.5.2   In NIPSA’s original submission (para 2.9.) the case was made for pensions to be based on the European Decency Threshold.


4.5.3   Qs 10/11 – The points above these questions.


4.5.4   Q12 – Public Service Pensions in conjunction with the payment of the contribution based state pension are critical to ensuring fair and adequate pension provision. Whilst there should be some scope to enhance and/or make up for lost service NIPSA would support not just auto enrolment but mandatory membership of the relevant public service pension scheme.


4.5.5   Q13 – Ideally pensions should be portable but due to the lack of adequate private sector pension provision it is unlikely that in the majority of cases transferring public service pensions would represent sound decision making and future good pension provision.


4.5.6   The real issue in response to Q13 is to level up the basis of private sector pension provision.


Employee Understanding and Choice


4.6.1   Q14 – Members have broad awareness of pension benefits in terms of the structure of the respective scheme. Pensions are certainly valued as deferred pay. There is scope to improve the degree and level of understanding of both the schemes and the benefits of pension provision.


4.6.2   Q15 – Scheme design needs to be understandable and the best way of achieving this is single benefit structures such as the existing final salary arrangements. In addition the contribution formula not only needs to be fair but also to be easily understood and applied.


4.6.3   Q16 – NIPSA has no evidence of good private sector communication practice. Whilst there can always be improvements in delivering information, broadly speaking the public sector pension schemes have good communication delivery mechanisms.


4.6.4   Q17 – As with the point made at 4.5.4 there should be some scope to improve pension provision via mechanisms such as AVCs. The use of the flexible decade of retirement linked to a ceiling of 40 years service for pensionable pay purposes would be fair.




4.7.1   NIPSA condemns the comments and recommendations in the interim report on Fair Deal.


4.7.2   Q18 – The pro externalisation theme for public services based on the unfair and wholly inadequate pension provision by private sector employers is totally rejected by NIPSA.


4.7.3   Q19 – NIPSA supports the provisions within the LGPS Schemes on admittance of third parties who deliver public services, if there is to be externalisation of public services then all public service pension schemes should apply the same entry provision as the LGPS.




4.8.1   Administration costs rise with both complexity of schemes and continuous

            changes to scheme regulations. Many schemes are just beginning to move to a settled administrative platform post the changes instituted over the past 5 years.


4.8.2   Q20 – The average private sector in-house costs are £47.00 per member and for private sector outsourced costs are £41.00 per member. This compares to the NILGOSC cost of administration of £30.88 per member. However to compare administration effectively requires the calculations to be on the same basis. A scheme with multiple employers (ie an LGPS Scheme) with a high proportion of active members compared to pensioner and deferred members would be much more expensive to administer than a 1 employer scheme (a typical private sector scheme) which may also have a higher proportion of pensioners and deferred members to active members would have a much lower administration cost. It is therefore very difficult to compare administration costs effectively between different schemes but the evidence suggests that the public sector provides very good value for money in pension administration.


4.8.3   Q21 – NIPSA has no experience of good quality and efficient scheme administration in the private sector. NIPSA experience in dealing with the private sector for the transfer in and transfer out of pension arrangements has generally been poor resulting in low quality and inefficient administration when compared to the service provided by Public Sector pension scheme administrators.


4.8.4   Q22 – This is not applicable to Northern Ireland as there only is one fund.




4.9.1   Many of the issues covered above such as communications, understanding, pensionable age all require detailed assessment and proper planning as opposed to short-term, ill-thought out politically acceptable responses to public sector pension provision.


4.9.2   Q23 – Firstly the Commission will have to ensure that there are detailed negotiations on any proposed changes, which requires full engagement with the relevant public service unions.


            To ensure an effective transition there must be sufficient time allowed to implement the new scheme. The regulations will require to be accurately drafted and made, the computer software changes required programmed, tested and implemented, the scheme literature and explanatory guides drafted and printed, staff trained in the operation of the new scheme and having it explained to the contributing employers and communicated to the members, pensioners and diferred pensioners.


4.9.3   Q24 – As with the comments at 4.6.3, 4.7.2 and 4.8.3 NIPSA’s experience is that the private sector has nothing to offer, indeed the experience is that when public sector pension administration has been contracted out it has been disasterous.


4.9.4   Q25 – All the evidence points to abject failure and in some cases abuse if not fraud in changes to private sector pension schemes. It was because of experiences such as these that the PPF had to be introduced as well as employers defaulting for business failure reasons.



5.         CONCLUSIONS


5.1       The pay and pension arrangements of the public services must be such as to attract the right calibre of recruit. In doing so a fair total remuneration package must provide for reasonable overall terms and conditions and at the same time be fair to the taxpayer.


5.2       The current economic difficulties have not been caused by public servants yet it is public servants who are being targeted. In particular public service pensions have unfairly came under the spotlight. This in the main is due to private sector organisations ill-informed assessment of those pension schemes or Daily Mail type stories that concentrate on the pension arrangements of a few highly paid people in the public service rather than the vast majority of low to moderately paid public servants.


5.3       The changes introduced by the Government since June not only undermine the work of the Commission but represent a very serious attack on public service pension provision, in particular the move to CPI.


5.4       The evidence is also available to demonstrate that there continues to be major equality issues with regard to the value of public service pensions. Any further attempt to create cost reductions from public service pensions is liable therefore to have greater impact on women thus exacerbating the inequalities. NIPSA demands that all proposals are subject to full equality impact assessment.


5.5       Pensions are not only part of the total employment package they are in fact deferred pay and as such recognised by the courts as protected ‘possessions’.


5.6       The numerous changes to the various public service pension schemes, especially those that rose on foot of the Public Services Forum agreement of 2005 have resulted in very significant additional contribution costs falling on the employee.


5.7       Many aspects of the changes still have to be assessed. The 2010 triennial reviews have just become available and need to be examined in detail. In addition provisions for additional changes such as capping and cost sharing will be taken forward post the 2010 triennial reviews.


5.8       In the United Kingdom one third of pensioners rely solely on the state for income during their retirement years. Many more have to claim top-up state support as the combined value of the state pension and occupational pension is still below the inadequately low level the state considers as being necessary.


5.9       Occupational Pensions therefore either supplement or take pensioners out of state support (other than the earned contribution basis state pension) and considerably reduce the cost of the taxpayer. The continued attacks on public service pensions will significantly change this picture. In fact, for many of the lowest paid public servants it would make more sense to opt-out of the pension schemes as over their working life and retirement they would be financially better off. This is especially so given the CPI move and Public Sector Pay freezes.


5.10    Public Sector Pension Schemes have and are addressing the impact of the demographic changes impacting upon pension costs. The basis of that reform is built upon sustainability and affordability. Further attacks on public service pension schemes will disincentivise scheme membership, re-enforce pension poverty, add costs going forward directly onto the taxpayer via means tested benefits and increase proportionally scheme costs.


5.11    The real pension problem in the UK is the private sectors retreat from providing fair and reasonable occupational pensions. Over two thirds of private sector employees have no occupational pension. The picture is of course dramatically different for senior executives and the Boardroom who have unjustifiable excessive ‘rhodium plated’ pensions, many in excess of £1m per annum. The retreat from occupational pensions is at a cost to the taxpayer having to provide means-tested top-up payments, to pensioners.


5.12    NIPSA calls on the Commission to ignore the continual attacks on public sector pensions, which come from right-wing pressure groups voiced through the media controlled by them and wholly opposed to public services or by those employers who have abandoned occupational pension schemes. Public Service Pensions are already sustainable, transparent, affordable, plus they are subject to ongoing reform.

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