24 February 2006
Almost a year to the day after Deputy Prime Minister John Prescott caved into pressure on pension rights, local government union members are once again being balloted for strike action on the issue.
Unions representing 1.5 million workers are preparing to ballot. Ballot papers have already been sent to 829,000 Unison members and are due back by March 10.
Unison head of local government Heather Wakefield has told Public Finance that action is likely 'on more than one date'.
The issue remains the future of the 85-year rule. This enables scheme members whose age plus years in service add up to 85 to retire on full benefits at 60.
A parliamentary order scrapping the rule was hastily revoked last year, following threats of strikes timed to coincide with the general election.
But an almost identical draft order was laid before Parliament in December, upon which consultation is due to end on February 28. Unions fear this new order will become law in April and the 85-year rule will be abolished from October 1.
While the position of local government leaders has not shifted since last year's dispute, the unions have given some ground. They now accept, in principle, that the rule must be removed and that cost savings have to be made.
The focus of the dispute has now moved on to the transitional protection arrangements for existing scheme members. The draft order protects only those who would qualify under the rule over the next seven years – far short of the lifetime protection recently granted for other public sector pension scheme members.
The government has adopted a neutral approach, describing the draft 2013 protection limit as 'indicative' only, but saying the cost of any extended protection should not fall on the taxpayer.
That has left the Local Government Association and unions in deadlock. The disagreements are mathematical, too, as each side gives radically different calculations of the costs and savings of any amendments.
The LGA claims demographic pressures mean the 85-year rule is not sustainable. The removal of the rule became even more urgent for employers after they instructed their actuaries to calculate future contribution rates based on it being scrapped last year.
Since then, the LGA has not referred to the 'savings' that removing the rule would bring, but to the 'costs' of not removing it, which would add to the scheme's estimated £27bn 'black hole'. They say they are willing to accept the transitional protection up to 2013, but warn that will cost £650m.
That will be balanced by what they estimate to be a £1.2bn saving over 15 years, generated by a change in tax law allowing scheme members to swap up to 25% of their pension entitlements for a tax-free lump sum.
That will leave £550m, says the LGA. But it then subtracts a further £470m, which it says is the cost of delaying the rule change from last year.
Terry Edwards, head of pensions at the Employers Organisation, which negotiates for the LGA, says that this means any extra protection will have to be funded from the remaining £80m. However, he suggests that even this money might be needed for other things.
'There might be a very little bit extra to fund some new protection. But the EO's position is that we need to be prudent. If you know there are bills coming up, you need to save for them.'
Wakefield rejects these calculations. 'They're using the most conservative actuarial assumptions that they really can't justify,' she says.
The unions say that the £1.2bn lump sum savings estimated by the LGA is too low. They claim it will save the LGPS between £5.4bn and £5.9bn over the same 15 years.
This radical divergence stems from the different assumptions their actuaries make about the proportion of members opting to take the lump sum. While the EO assumes take-up at 50%, unions argue it will be nearer 95%.
Consequently, they say, the savings are more than enough to fund lifetime protection for existing members, which they estimate to be £5bn over 15 years.
The Treasury, unsurprisingly, tends to favour the employers' calculations. But the unions hope that the threat of strikes – to coincide with the May local elections – will force ministers to look at the sums again.
Wakefield says any reassessment should also look at issues of scheme modernisation, particularly around gender equality.
'We want to look at the scheme in the round – at equality and different commutation rates, for example. We've always argued that isolating the issue of the rule of 85 would make it very difficult to look rationally at all the costings.'
PFfeb2006
