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Public Sector Pensions and Cuts

Submitted by on 26 Jul 2011 – 11:35

Jonathan BaumeJonathan Baume, General Secretary of the First Division Association (FDA)

Unions are often portrayed in the media as being resistant to change, but that would be to ignore the evidence. Public sector unions – including the FDA – reached a settlement with the Government in 2007 that led to the creation of a new career-average pension scheme, with a pension age of 65 for new scheme entrants. Examining these changes, the National Audit Office (NAO) said in December 2010 that, In addition to saving significant sums of money, the changes are projected to stabilise costs in the long-term around their current level as a proportion of GDP.” The NAO emphasised that the savings were made by employees “in the form of increased contributions or reduced future pensions”.

More recently, in July 2011, the Office for Budget Responsibility (OBR) found that upward pressures over the next 50 years on the main areas of age-related spending (health, state pension and social care costs) are projected to be partially offset by a fall in gross public service pension payments – from 2% of GDP in 2015-16 to 1.4% in 2060-61. This projection – contained in the OBR’s Fiscal Sustainability Report – was similar to that in Lord Hutton’s Independent Public Service Pensions Commission final report.

The FDA argues that considerations of affordability and sustainability of pensions must take account of all the changes the Government is planning to implement that will impact on pension benefits, including switching the uprating index from the retail prices index (RPI) to the consumer prices index (CPI).The decision to switch from RPI to CPI will substantially reduce the cost of public sector pensions and is a considerable detrimental change for scheme members. Lord Hutton’s commission estimated that this reduction in benefits will be 15% for scheme members on average, and 25% for members of the Nuvos career-average scheme.

The uprating switch is the subject of a legal challenge by the FDA and other organisations, with a hearing scheduled for October this year.

These recent attacks on senior public servants’ pensions come as part of a wider assault on their living standards: a volatile cocktail of a two-year pay freeze (three for the Senior Civil Service) and job reductions on an unprecedented scale. As the Government’s wide-ranging and extensive legislative programme unfolds, the very people tasked with putting it into effect are being undermined in a most egregious manner.

The FDA has always been willing to take part in meaningful negotiations in order to reach a settlement on pensions that is agreed by our members and that is fair – for public servants as well as for tax payers.The FDA has long argued that changes to pensions for public servants must be considered as part of their total reward package. Pay comparability data prepared for the Cabinet Office shows that pay rates in the more senior civil service grades (grade 7 and above) are now between 21.7% and 97.6% lower than for comparable jobs in the private sector. Further evidence for higher base pay for comparable jobs in the private sector compared to the civil service is provided in Government evidence to the Senior Salaries Review Body (SSRB), which said: “The median salary (base pay) of all internal SCS as a proportion of external SCS continues to fall – it now stands at 82% of that of external SCS down from 83% the previous year and 85% in the year before that.”

The civil service must always have the potential to attract, recruit and retain the best talent from all sectors of the economy. The long-term strength and viability of the civil service would be significantly weakened if the contribution to the total remuneration package made by public service pensions were to be undermined.