21 October 2005
Government departments could still be forced to reduce entitlements for new public sector staff to meet its £13bn savings target across the sector – despite this week's surprise deal on the pension age.
While trade unions were celebrating a volte-face by Trade and Industry Secretary Alan Johnson over plans to increase the pension age for all public sector staff – and ministers faced down criticism from business leaders – senior Whitehall sources told Public Finance that new entrants were most likely to pay the price.
Despite agreeing to retain a pension age of 60 for all existing civil service, education and NHS staff, the government has insisted that the £13bn in savings that would have been made over the next 50 years if the pension age had risen to 65 as planned, must still be found.
A senior government pensions expert told PF that 'a likely consequence is some reasonably significant reductions to retirement entitlements for new staff, who will be forced to join new schemes'.
One possibility is the introduction of a civil service, or local government, pension scheme based on a new employee's average salary, rather than the final salary calculation that existing staff would continue to enjoy. Less controversial possibilities include lower pension accrual rates for new staff and different packages relating to partners' pensions.
Johnson backed down from his commitment to increase the pension age for existing public servants at a meeting of the government/union Public Service Forum on October 18.
As late as October 16, Johnson claimed that the case for raising the pension age to 65 was 'irrefutable' because of escalating costs and demographic changes. In the face of fierce union opposition, the sector was set for a national strike by up to 3 million employees.
However, Johnson, Trades Union Congress general secretary Brendan Barber and union leaders across the civil service, health and education sectors reached a deal that retains a pension age of 60 for existing staff.
In return for Johnson's concession, the union general secretaries involved – including the FDA's Jonathan Baume, Unison's Dave Prentis and Mark Serwotka of the Public and Commercial Services union – accepted that new entrants to pension schemes would work to 65 before they could receive a full pension.
Johnson said: 'This is a sensible step forward, achieved through proper negotiations, which puts public sector pensions on a sound financial footing.'
In total, the PSF agreed a list of 12 'pension principles'. These have been sent to PF and reveal the full extent of the deal.
As well as protecting existing staff from an increased pension age, it guarantees that all other 'accrued pension rights of the existing workforce will be fully protected in the event of transition' to a separate scheme for new staff.
A framework is to be put in place to allow all new civil service, education and NHS staff to retire at 60 on reduced pensions but the opportunity exists for existing employees to join new schemes if they prefer.
Despite committing all new staff to a pension age of 65 from June 2006, the PSF deal ensures that all new schemes 'should continue to guarantee defined benefit provision, linked to an individual's earnings' as well as 'indexation to protect retired members against rises in the cost of living'.
Michelle Lewis, pensions officer at the TUC, told PF that this meant 'future generations of staff were still guaranteed high-quality pensions, despite the increase in their pension age'.
Local government and fire service workers, however, must wait to find out if they will receive full pensions at 60 after they were exempted from the PSF agreement.
Unlike the NHS, civil service and teaching pensions – the costs of which are directly covered by the Exchequer – the Local Government Pension Scheme is funded. Ministers this year introduced controversial changes to the LGPS, including a general retirement age of 65, which were later revoked following union opposition.
Local government employers want the proposed changes reintroduced and have demanded compensation for the cost of the revocation (estimated at over £250m).
But Heather Wakefield, national secretary at Unison, said Deputy Prime Minister John Prescott 'will now come under enormous pressure' to propose a similar deal for the LGPS's 2 million members.
'We're told the PSF deal was backed by the Cabinet and we're assuming that includes John Prescott,' Wakefield said. 'So it is high time he resolved the LGPS's uncertainties and agreed a framework for future negotiations based on the PSF proposals.'
Office of the Deputy Prime Minister officials and town hall employers are set to meet union leaders on October 27 to discuss the LGPS. Prescott himself will chair a crucial meeting on November 2.
Business leaders have reacted with fury to Johnson's last-minute deal. Sir Digby Jones, director general of the CBI, said: 'This is a bad deal for the taxpayer. The government has capitulated to the threat of public sector strikes.'
However, not all unionists were pleased. Brian Strutton, the GMB's national secretary, warned: 'The protection that this deal brings… comes at a price. This creates two-tier pensions in public services, which GMB has campaigned vigorously against.'
PFoct2005
