Briefing No 77
briefing paper provides an update to Briefing No. 52 on the Pensions Green Paper.
It highlights changes since the introduction of the Green Paper, specifically
those arising from the Office of the Deputy Prime Minister (ODPM) Stocktake review
of the Local Government Pension Scheme (LGPS) in England and Wales and its impact
review aims to bring the LGPS into line with Government policy on occupational
pensions. Although this primarily affects the LGPS in England and Wales, the Scottish
Public Pensions Agency (SPPA), who administer the LGPS in Scotland, have indicated
that they will normally replicate such changes given the desire to have reasonably
comparable schemes across the UK unless there was a good reason not to do so.
The SPPA however have also indicated that they will await the outcome of the consultation
on amendments to the LGPS in England and Wales but will probably introduce similar
changes in 2006 rather than 2005.
Minimum Pension Age
the Pensions Green Paper, the UK government highlighted that it wanted to increase
the minimum retirement age at which occupational pensions could be paid (without
a reduction in benefits) from 50 to 55. A further paper from the Inland Revenue
indicated that this shift in the minimum pension age should be achieved by the
year 2010. However the ODPM review has now recommended that this change be introduced
by April 2005.
UNISON can see no justification for implementing
this change effectively five years before it is needed. No case has been made
as to exactly how this will be beneficial to the scheme and its stakeholders.
There is also no indication that the employers will change
their redundancy strategy. Clearly, if this does not happen, then someone made
redundant between the ages of 50 and 55 will suffer a loss of pension expectation.
For many, this will simply lead them into poverty with little chance of re-employment.
UNISON questions how this change is likely to sit within
the wording of the Superannuation Act 1972. The right to retire at age 50 if made
redundant is clearly an entitlement under the current Regulations and is referable
to rights which have accrued "whether by virtue of service rendered, contributions
paid or any other things done".
As a minimum,
if this change was to be introduced then service up to the date of the amendment
should be fully protected.
of the key issues in the Pensions Green Paper was the intention to raise the normal
retirement age to 65. This was to be done by removing the '85 year' rule, initially
from new members and then by phasing it out for existing members.
LGPS has a normal retirement age of 65 for members who joined the scheme after
March 1998 other members have a normal retirement date between ages of 60 and
65. The LGPS provides that members can retire before attaining the age of 65 with
unreduced benefits provided that their age and length of membership of the scheme
satisfy the '85 year' rule. (i.e. age + membership = 85). However it is up to
the employer to agree to this, the final decision resting with them as they have
to make additional contributions to the pension scheme. Therefore to align the
LGPS with the governments policy proposals there will have to be amendments to
ensure that no new members will be able to invoke the '85 year rule'.
it was planned that such a change for new employees would take place in 2006,
however after consultation with the Employers Organisation (for Local Government
in England and Wales), the UK Government decided to bring this change forward
to April 2005.
UNISON is against the removal of the '85
year' rule. The ODPM paper ignores that prior to March 1998 when the amendment
was introduced to bring the retirement age to 65 there was the Rule of 25. This
meant that any member who had completed 25 years of qualifying service by age
60 could retire with an immediate unreduced pension – in effect meaning that the
effective normal retirement age for most members is 60.
because of the additional cost to the employer the '85 year rule' was not often
granted by employing authorities yet employers used this rule to save money by
cutting a post knowing that if it cost too much all they had to do was deny this
option to members.
UNISON believes that removing the '85
year rule' actually removes flexibility from LGPS, and may be seen as a disincentive
to join and could lead to increasing capability and ill health retirements.
regard to existing employees the phasing out of the '85 year rule' has been brought
forward from 2010 to 2005 with the ODPM paper looking more at how such a change
could be accomplished rather than whether it is actually necessary.
could lead to complicated calculations on how to apply the '85 year rule'. For
instance, once a scheme member satisfies the 85 year rule their benefits resulting
from membership prior to the date of the amendment (2005 – in England and Wales)
would remain protected (i.e. unreduced benefits), while those accrued after the
amendment would be subject to reductions.
There is a concern
that this move also contravenes the Superannuation Act 1972 in that, 'No scheme
… shall make any provision which has the effect of reducing the amount of any
pension, allowance or gratuity insofar as that amount is directly or indirectly
referable to the rights which have accrued'.
is concerned at the lack of consultation and the speed at which these changes
are taking place (especially in England and Wales). It seems that the government
have used the excuse of a fear of increasing costs from imminent valuations of
the pension schemes as a reason to introduce the above changes yet no figures
have been provided to justify these assertions.
information received by UNISON from representatives on investment panels the situation
is more complex and the partial recovery in the stock market may mean that costs
may have actually decreased as a result of valuations. It therefore appears that
the rush to push changes through are based mainly on short term political considerations
and there is no guarantee that it will work in sustaining the pension scheme.
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.
will continue to campaign to protect and enhance the LGPS.
of Works and Pensions:
Proper Pensions Campaign
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