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PCS submission on public service pensions to the Hutton Review

Introduction

The Public and Commercial Services Union represent almost 300,000 civil servants most of whom are members of the Principal Civil Service Pension Scheme (PCSPS).

The PCS membership is across all grades and departments of the Civil Service, together with many tens of thousands of members in NDPBs and other public bodies, including the civil staff of the Metropolitan Police.

The majority of PCS members earn less than £21K per annum and  are in grades where the average length of service is between 10 and 14 years. The consequence of this is both that their occupational pension is small but never the less, it is seen as an important part of the total reward package.

Indeed the pension,and the job security previously enjoyed by the Civil Service, is seen as something of a counterpart to the historically low levels of  pay - pay which has remained unreformed over many years.

The Principal Civil Service Pension Scheme (PCSPS) is an unfunded, defined benefit, contributory, public service occupational pension scheme. The PCSPS covers four pension arrangements. New entrants joining the Civil Service from 30 July 2007 are offered membership of nuvos, a whole career pension with a pension age of 65. Before 30 July 2007 those joining the Civil Service would have been eligible to join one of the previous final salary arrangements of premium, classic and classic plus.

The approximate split of active membership of the PCSPS at 31 March 2010 was 58% classic, 3% classic plus, 25% premium and 14% nuvos.

This submission by PCS is supplementary to and complements those made by the TUC and the Council of Civil Service Unions (CCSU). The PCS view can be summarised as follows:-

1. There has already been substantial and agreed reform to the benefits, structure and pension age of the PCSPS. Indeed this reform, as demonstrated by the nuvos arrangements, was probably the most far reaching in the public sector.

2. There are already arrangements in place between the employer and the trade unions to examine the outcomes of the current actuarial revaluation and to consider the implications of that in light of the circumstances at the time.

3. Any discussion of the PCSPS needs be in the context of the current issues facing the workforce who are its current membership of the scheme. These issues include the current pay freeze, recent and future job losses, dramatic reductions in levels of redundancy compensation planned by the employer and historical low levels of pay and pensions for the majority of members. In addition pay progression in the civil and public services, unlike all other areas of the public sector is not funded.

4. Whilst PCS has always demonstrated its willingness to enter into constructive negotiations with a view to reaching agreement on even the most difficult issues it remains adamantly opposed to imposed and arbitrary changes.

5. It is also the PCS view that the current arrangements for the protection of pensions for staff outsourced, contacted out or privatised are important and valued by all parties and should be retained to preserve a “level playing field” in these situations.

6. In conclusion the PCS case is that significant reform of the PCSPS has taken place and is in place for the future therefore further reform is unnecessary.

Public Service Challenges

On 22 June, as part of the Emergency Budget, the Chancellor announced that a two year pay freeze would be implemented immediately for all public sector employees, which includes Civil Service staff, earning more than £21,000. The impact of this saving will hit many members already facing rises to the cost of living, hard.  Although some, (those earning less than £21,000) will get on average £250 this will not go far. Any changes to contributions or benefits will be a further blow in a time of rising inflation. The Commission terms of reference talks about protecting low paid workers: the median salary in the civil service is £22,500 compared to over £24,000 in the whole economy.  Compared to private sector workers, call centre staff earn 14.3% less in the civil service despite often providing vital services relating to benefits and advice. 6.7% of the civil service earn less than £15000p.a. Responsibility doesn’t mean high paid supervisors.

Cuts to jobs and services in the public sector will impact on our members meaning that those in the civil service may be forced to cut short their service or retire earlier than anticipated with a knock on detrimental effect on pensions, that for our members is an average of only £4000p.a.

Changes in the indexation indices from RPI to CPI which we understand the Commission is looking at separately, will also compound any reduction and it would be a real ongoing loss year on year.

The technical difference in the way that the RPI and the CPI are calculated will have a genuine effect on civil service pensions. Pension increases will in future average about 0.75% less each year, simply because of the change in the way the index is calculated.

Principal Civil Service Pension Scheme

The PCSPS is made up of four different schemes, three that are closed to new members Classic, classic plus and Premium and the current open scheme ‘nuvos’ The changes since 2000 show how the civil service have worked with the unions to develop more modern approaches to pensions in particular in moving away from the final salary scheme without losing defined benefit. Increasing the contributions or changing the scheme, without forcing low paid members to suffer detriment has been a practical ‘pain free’ way of modernising.  The accrual rate in the different schemes are relatively low compared to for example MP’s pensions. The better the scheme the more members pay.

The classic scheme is a scheme that reputable external commentators compared to a ‘middle value private sector scheme’ not a good one, based on scheme benefits. The media image of ‘gold plated pensions’ is inaccurate. Members contribute to decent defined benefit schemes but relatively low pay across all grades combined with an average length of service of 8 years mean that final pensions in payment are generally inadequate. Savings to the scheme could worsen this situation.

Contributions

Pay Research carried out by the Office of Manpower Economics looking at civil service pay comparisons found that the Government Actuary took account of the fact that benefits were based on reduced pensionable pay when valuing civil service benefits against outside analogue schemes.

Consideration was also taken of the tax relief that would have been available on contributions. Despite lower contributions levels, valuation (currently ongoing) points to the sustainability of the PCSPS and we believe the total reward package of civil servants must be taken into account. Low paid workers faced with increasing contributions are more likely to leave the scheme thus placing longer term pressure on the welfare system with the increased admin costs that would involve.

Equality

Women members have suffered in pension terms with lower pay (the civil service gender pay gap is higher than the whole economy at 16%) and often broken service.  The nuvos scheme has been a real leap forward for a modern civil service where service relates to an overall working life rather than assuming a long career and promotions.  Our members agreed a fair scheme in 2007 and we do not accept a need for that to be the subject of further review.

Cost sharing

There is currently an actuarial revaluation underway of the PCSPS the outcome of which is expected to begin to emerge later this year.  PCS, and the other Civil Service unions are engaged in this process through their representation on the PCSPS Governance Group. There is a wide measure of agreement on the factors which will form part of the revaluation and, indeed, on those that will not. It is accepted by both management and trade unions that once the outcome of the revaluation is known and the potential options are set out for responding to this, that there will need to be period of discussion and negotiation to determine a way forward.

The long standing stated position of PCS is that it will respond to these issues in light of the circumstances appertaining at that time.

Indexation

The implications of the planned change in indexation methodology are dealt with in greater detail in the CCSU submission. However PCS are disappointed that key decisions on future indexation have been taken without consultation and in advance of this Review, or indeed of schemes own revaluations. These arbitrary decisions will have a profound impact, not only for increases in pensions in payment now and in the future but also on the annual pension pots built up in the nuvos arrangements.

As a consequence PCS will be exploring the avenues, whether in Parliament or through the Courts, available to challenge this plan.

Fair Deal

Press speculation about the increased interest that private industry has in public service delivery business reminds us how important it is to maintain the pensions Fair Deal. Civil servants transferred from one scheme to another when work is contracted out need to be wholly protected from detriment particularly facing difficult work challenges delivering public services in the current climate.

Accrued rights

We understand that our members should have all the benefits that they have accrued up to the present time protected under law.  We believe that their expectations of continuing benefits at the same level should be an important consideration in considering changes to any arrangement. Members make plans and commitments with a set of expectations about future income, the threat of cuts, a two year pay freeze with some hit this year and others next, mean changes to their pension expectations seem arbitrary and unfair.

In conclusion PCS do not believe further changes to the PCSPS are currently necessary and are steadfastly opposed to any arbitrarily imposed changes.