Mitigating Pension Climate Change

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Mitigating Pension Climate Change

The pension weather forecast is unstable. A number of pension events are moving towards areas of high pension pressure. These have been building up, the side effect of wider policy trends impacting upon the pensions climate, like austerity, Brexit or auto-enrolment. If, where and when these storm clouds break is difficult to predict with a number of variables that could change, especially with the wider political and economic environment so uncertain and unstable – but like wider climate change, the earlier we recognise and prepare for the potential storm the easier it is to mitigate the local risks.

These storm clouds include:

1)  The Government having forced through legislation capping compensation for departing public servants at £95K. This is incompatible with existing legislation supporting the Local Government Pension Scheme (LGPS), which guarantees immediate access to pensions with enhancements for anyone made redundant over 55. Pension enhancements alone can cost more than the cap.

With local authorities unable to afford compulsory redundancies and most areas having a shortage of staff, this crisis has been on hold but unions need to be concerned about the threat. This has particular resonance in probation where proposed reforms would bring hundreds more staff under the LGPS whilst working alongside civil servants in a different scheme who’d be much cheaper to get rid of. Napo will oppose anything that waters-down the value of the LGPS and makes members more vulnerable to being dismissed.

2)  The 1st audit of the reformed CARE schemes evidenced contributions surpassing the amounts needed for the schemes to be sustainable – or put differently, employers and employees have been paying more than they need to into the new schemes. Part of the reason is that austerity meaning pay rises, exit pay-offs and inflation have been lower than anticipated.

This threat could blow over. There’s an argument that pension surpluses, especially early in a scheme’s existence and when there is widespread economic uncertainty elsewhere, are no bad thing. Pension “contribution holidays” are part of the reason why pension funds ran into difficulty.

However, with unions angry about continued pay restraint and employers struggling to meet high contributions both sides could easily argue for contributions to be reduced – prompting potential disputes between each other and with Government. Unions could argue to swap lower contributions for higher pay now. Employers could argue to lower their contributions after reduced funding – perhaps to facilitate recruiting more staff.

3)  The FBU and judges have won an ET against their scheme reforms. These involved “transitional protections” for those closer to retirement being age discrimination against younger staff not protected. This must be corrected, across all public sector schemes. LGPS unions agree the direct impact on our members is likely to be minimal because such transitional arrangements were minimal in the LGPS – a higher accrual rate in the new scheme and pay cap since minimising any costs.

However, it would be naïve to think LGPS will be immune from Government reaction to it’s own pension PPI scandal and that we won’t have to fight off efforts to recover their costs through cut backs in other areas. This is part of Napo’s thinking in supporting the GMPF’s suggestion to establish a separate protected fund for paying Ill-Health Early Retirement.

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