UNISON Scotland LGPS Update the rule of 85 Briefing No 132

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LGPS Update – the rule of 85 Briefing No 132

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LGPS Update – the rule of 85 Briefing No 132

January 2006

Introduction

This briefing provides an update of the proposed changes to the Local Government Pension Scheme, in particular the decision by the Scottish Executive to abolish the rule of 85.

The Scottish Executive View

Tom McCabe MSP, Minister for Finance and Public Service Reform, announced (17th January 2006) that the Scottish Executive will abolish the rule of 85 from the Local Government Pension Scheme (LGPS). The Minister, following a similar decision taken by the UK Government in respect of the LGPS in England and Wales, has decided that retaining the rule would be incompatible to a forthcoming EU Directive on Age Discrimination.

The Response

Both UNISON and CoSLA believe that the rule of 85 does not conflict with the EU Directive and have legal opinion to confirm this.

This view was further strengthened when Katharina von Schnurbein, the EU's spokeswoman on employment, social affairs and equal opportunities, said the Scottish Executive was wrong. She cited Article 6 of the directive, which states that governments can treat people differently on the grounds of age in certain circumstances.

Von Schnurbein added: "It's an artificial debate [and one that] is only going on in Britain. The directive has no influence on pension value or pension age. It is completely up to the member state. If they think it is reasonable for people to retire at 60, under EU law that is perfectly legal.

This decision has also attracted criticism within the Scottish Parliament with John Swinney, the SNP shadow finance minister, stating, "The government is short-changing local government employees and has been caught out for using the EU as a convenient institution to blame when all it is trying to do is pilfer from the pension funds."

This decision by the Executive also fails to take into account the differences between the Scottish LGPS and the LGPS in England and Wales. The Scottish funds are generally regarded as more healthy and do not have to cover any revocation costs that the English and Welsh funds have to cover when the rule of 85 was briefly abolished and the reinstated in 2005.

Further action in the Scottish Parliament has included a motion by Janis Hughes MSP calling on the Scottish Executive to consult with CoSLA and trade unions to find a solution to this issue. A similar motion was also put forward by Carolyn Leckie MSP.

The rule of 85

The rule of 85 allows LGPS members to voluntarily retire from age 60 on an unreduced pension where the sum of their age plus membership, in whole years, equals 85 years. Scheme members satisfying the rule between age 50 and 60 may also retire with no actuarial reduction to pension, but only with their employers' consent.

Impact of Abolishing the Rule of 85

The LGPS does not only affect local government workers, it also includes staff in higher and further education, the community and voluntary sector as well as others such as the police support staff.

Abolishing the rule of 85 would result in staff either retiring on a reduced pension or carrying on in their jobs when they are not fit to do so. This could result in more workers leaving on ill health grounds. How would you feel if your elderly mother or grandmother was being looked after by a home help or residential worker only a few years younger than them, and who cannot cope but cannot leave?

These people of course have also signed up to do their jobs on the basis of the existing pension provisions. They all contribute their own portion of their future pensions – indeed the local government scheme is funded by employer and employee contributions and is ironically the one public sector scheme where early retirement is directly under threat!

Pay in the public sector is significantly less than people could earn in the private sector, so the existence of a basic decent pension is a recruitment incentive.

Of course early retirement is not compulsory for public servants. These facilities are open to people to use or not – often only with approval of their employers. Indeed the flexibility offered by the early retirement facilities is most often used by those same employers when they are faced with 'efficiencies', reorganisations – both internal and external and other changes that happen to public sector organisations with monotonous regularity. Exactly how efficient is it to have surplus staff with no jobs to do because they cannot take their pension?

It is not either the case that these pensioners are the 'fat cats' that some commentators are putting about. Hymans Robertson – a leading actuary – say that 75% of local government pensions are less than £5,000. Women – who make up the majority of most public sector scheme members have a staggeringly low pension of £1,616 per annum. If Tom McCabe is serious about tackling discrimination in Local Government pensions here is a better place to start!

UNISON recognises that some changes need to take place. The demographic changes, and particularly the changing nature of work mean that we remain committed to discussing and negotiating positive changes to existing schemes. Although it should be clear that increasing life expectancy is not a phenomenon that affects everyone equally. For example cleaners have experienced NO increase in life expectancy in the last 25 years.