Local Government Pensions Scheme Phase
2 Amendments
January 2005
Introduction
This briefing paper provides an update on the
Local Government Pension Scheme (LGPS) regarding the Proposed
Phase 2 Amendments from the Scottish Public Pensions Agency (SPPA).
Background
The Scottish Public Pensions Agency (SPPA) is
considering introducing draft amendment regulations covering the
Local Government Pension Scheme (LGPS) in Scotland. These changes
replicate what has happened to the LGPS in England and Wales.
The SPPA aims to bring the LGPS in Scotland into
line with UK Government policy on occupational pensions. The two
main issues affecting the LGPS with these amendments would result
in the normal retirement age being increased to 65 (by phasing
out and abolishing the 85-year rule) while increasing the minimum
retirement age to 55.
Retirement Ages
Raising the Normal Retirement Age
UNISON Scotland supports the principle that public
service workers who wish to work for longer should be able to
do so. However, rather than seeking to raise retirement ages by
imposing financial penalties on hard working public service workers,
the Scottish Executive should encourage workers to stay on for
longer by tackling the work-related reasons why public service
workers do not always want to work on until the age of 65.
While welcoming the UK Government's intention
to bring forward legislation affecting age discrimination at work
in 2006, it has to be realised that similar legislation affecting
equal pay was introduced in 1972 but a gender pay gap still exists.
Thus any age discrimination legislation will take some time to
be fully implemented.
85- Year Rule
In order to encourage more workers to keep working
until they are 65, the SPPA propose abolishing the 85 year rule
for new members and phasing it out for existing members (see Briefing
No. 77 for more details).
The abolition of the rule of 85, will mean that
workers who retire below the age of 65 will face a substantially
increased chance of poverty in retirement and of being forced
to depend on means-tested benefits. Under the proposed change,
workers who retire at age 60 and who now qualify for an unreduced
pension as a result of the rule of 85 would see their pension
reduced by as much as 30%.
UNISON Scotland is concerned that a reduction
in pension income would have an adverse and disproportionate impact
on low-paid, part-time workers in the scheme, the vast majority
of whom are female, and many of whom have low state pension entitlements.
There are further concerns that forcing workers
to stay on until they are 65 will result in more ill health and
a lack of opportunities for school leavers and graduates.
Raising Minimum Retirement Age
UNISON Scotland is strongly opposed to the proposal
to increase the minimum pension age from 50 to 55. We believe
that this change would lead to substantial hardship for workers
in the 50-55 age range who may in future be made redundant.
UNISON Scotland is very concerned about the impact
that an increase to 55 in the minimum retirement age would have
on workers between 50 and 55 who are made redundant. Obviously,
if the proposed change goes ahead, we would hope that employers
would seek to avoid making redundancies within this age group,
many of who may find it difficult to obtain suitable alternative
employment. However, this unfortunately cannot be taken for granted,
and if workers in this age group are made redundant they may suffer
considerable hardship, having no pension income to fall back onto
until they are 55 and being forced to take whatever work they
can get or to rely on benefits.
Other Issues
UNISON Scotland believes that if changes are
made which reduce individuals' retirement expectations there is
a real danger that fewer workers will join the scheme, lowering
take-up and raising costs by pushing up the average age of scheme
members. In particular, we are concerned that the impact of this
would discriminate against women, with the biggest drop in take-up
being among low paid, mostly female, part-time workers.
UNISON Scotland is concerned that these radical
changes are being proposed to the LGPS on the basis of insufficient
evidence. UNISON Scotland believes that it is unacceptable for
SPPA to propose changes to LGPS on grounds of cost before the
results of the next actuarial valuation is known and available
for public analysis.
Impact on Scotland
UNISON Scotland believes that the SPPA should
examine the impact of these proposed amendments in terms of the
effects they will have on Scotland's public sector workforce and
the economy as a whole.
Although the proposed amendments centre on the
LGPS it is assumed that they will be extended to all public sector
pension schemes. However with higher public sector employment
in Scotland compared to the UK (27.9% compared to 23.6%), these
amendments, if approved, will have a stronger effect on the Scottish
economy than in the UK as a whole. Therefore this will result
in a worsening of the pension provision for almost one third of
the working population of Scotland. This will have a related impact
on future pensioner poverty, more reliance on means tested benefits
and a weakening of the purchasing power of a significant number
of the population which would have a knock on effect on the Scottish
economy.
Also with Scotland having a higher average age
and lower average earnings than the UK as a whole, this will leave
Scots workers with less time and a lower income in which to make
alternative pension arrangements.
Therefore UNISON Scotland believes that the SPPA
should take the above factors into account when deciding whether
or not to proceed with the proposed amendments to the LGPS. UNISON
Scotland believes that the factors outlined above indicate that
these proposed amendments would have a significantly stronger
detrimental effect on Scottish scheme members and, on this basis,
the amendments should be rejected.
Action for Branches
This briefing paper is intended to update members
on proposed changes to the LGPS. As mentioned earlier the SPPA
are likely to introduce these changes in Scotland in 2006.
UNISON will continue to campaign to protect and
enhance the LGPS.
UNISON Scotland Response to Proposed Changes
http://www.unison-scotland.org.uk/response/pensionresponse.html
UNISON Proper Pensions Campaign
http://www.unison.org.uk/pay/pensions.asp
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