Further twists on the Government's new pension formula: accrual rates, what happens if you retire at 60

Submitted by martin on 6 January, 2012 - 9:38

Unite health sector executive member Gill George has circulated a sharp analysis of un-noticed twists in the Government's December 2011 formulas for public sector pensions.

Her analysis focuses on the NHS scheme, but most of what she writes applies in large measure to the other schemes, too.

The real shocker here for me is how raising the retirement age will clobber our pensions. In the future, if we want to (or have to) retire at age 60, it'll cost us a third of our pensions.

I'm also attaching a terrific article, from the Financial Times of all places, on life expectancy and disability-free life expectancy. Only a third of us will make it to 68 without significant illness or disability (and that'll be mostly rich people). The 'work longer' nonsense is just a trick to rob us of our pensions. Very, very few of us will be fit enough to work through to 68.

A couple more snippets worth thinking about. People are probably already familiar with this, but here's a key quote from Danny Alexander, made in the House of Commons statement on 20th December: 'Because we have agreed to establish new schemes on a career average basis, I can tell the House that we have agreed to retain the fair deal provision and extend access for transferring staff. The new pensions will be substantially more affordable to alternative providers, and it is right that we offer workers continued access to them'.

The pensions attack and the Tories' privatisation agenda are inextricably linked, that's for sure. Also, though, the point is made quite clearly here by cuddly Dan that it is the career average pensions that will be 'substantially more affordable'.

He specifically highlights career average pensions, as opposed to all the other bad things going on. The shift to career average pensions is a hugely significant attack on us. I've seen academic research that shows that career average pensions are typically worth 40% less if the accrual rate remains the same; even with the new squeaky clean 1/54 and a (truly rotten) revaluation rate linked not to earnings or RPI, but to CPI - i.e. the stingiest possible approach - we will lose out big-time.

The Government hasn't insisted on a career average because they think it's 'fair'; they've done it in order to nick a bigger slice of our pensions and to open up the NHS to their private sector pals.

Career average pensions are bad news for all of us, and particularly catastrophic for women who take breaks or do lower paid jobs to accommodate child care. I suspect we've not really made enough of the issues around this.

And an obscure nasty on accrual rates. Look at Annex B of the Heads of Agreement. There's an employer 'cost cap' of 2% above the employer contributions - we've had a similar concept in the last revamp of the NHS scheme. This is to deal with 'unforeseen events and trends that significantly increase scheme costs'.

The problem is, the Government has a farcical estimate that only 1% of people will opt out of public sector pension schemes as a result of their changes. That's just nonsense (and even Andrew Lansley has raised strong concerns on this one).

Any of us who have done pensions meetings will have seen the way people's jaws drop when you tell them how much extra they're going to be paying by April 2014. I've found that a lot of younger staff - with retirement feeling a long way off, and juggling a pay freeze and high inflation already - are just saying they'll leave the pension scheme.

If this does happen, the costs will mostly get passed on to us (because of the employer cost cap). The Government will very kindly offer a 'period of consultation... before changes are made'. If we don't agree to a new way of screwing our members even more, the accrual rate will be automatically adjusted to devalue our pensions even more. This is quite serious - I'd put money on this happening (if I had any left).

The only real 'concession' is protection for health workers within ten years of retirement, and the very poor transitional protection. People of my age are told that we 'only' have to pay more and get a typical 15% or 20% loss of pension through the switch to CPI, and we're asked to sell the futures of our younger colleagues on this basis.

The Unite pensions expert described this yesterday as 'very significant in dividing the workforce' - a sharp analysis of the Tories' divide and rule games. He also noted that there are 500,000 members of the 1995 pension scheme, with a current retirement age of 60, who will fall completely outside the protection arrangements. If this is protection, it's shockingly inadequate.

I'm well aware I'm preaching to the converted - but it's hard to see how Unison's leadership can sell this as a good outcome, or even as 'damage limitation'. There's surely way too much damage here to sustain an argument that it's been successfully limited.

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