Posted by:12 January, 2012
There was much drama as local government finalised a pension reform deal last month. But what did they manage to agree on?
In fact, the pension reform deal brokered by employers and unions contains very little on what the reformed scheme should look like and a lot on what they need to argue about and exactly when they should do the arguing.
The principles were very carefully worded to make sure no one committed to too much - which was precisely why communities secretary Eric Pickles’ overly-specific letter went down like a lead balloon.
We know what he shouldn’t have said, but what did the principles say?
‘Single step’ reform
Principle 1. A single solution to both short- and long-term issues by the early introduction of the new scheme (regulations by April 2013 and implementation from April 2014) negating the need for scheme changes prior to April 2014.
This first principle marks a significant victory for local government over the Treasury which had, until this point, insisted the pension scheme should deliver a £900m saving by increasing employee contributions this year.
No one is shouting about it, not even victorious local government, but this requirement has been swept under the carpet meaning council employees will escape the additional contributions that will be paid by colleagues elsewhere in the public sector
Career average or final salary?
The replacement of a final-salary pension with a scheme based on career-average earnings remains a contentious point, and it was Mr Pickles’ over-egging of the pudding on this point which helped to put the cat amongst the pigeons.
His letter welcomed “the commitment to a career average scheme” when the agreement was much more mealy-mouthed.
Principle 2. That the single solution be designed around options that will be worked on the basis of career average…
This was the second flash point in Mr Pickles’ letter. He again welcomed a “commitment” to a “normal retirement age equal to state pension age”, but the relevant principle in the agreement contained a little more wiggle room.
Principle 5: In order to encourage flexible retirement, the age at which benefits may be taken (the pension age) is to be any time between 55 and 75. Benefits are to be adjusted up or down relative to the proximity of the pension age to the Normal Pension Age (NPA) which is to be linked to State Pension Age (SPA) or age 65 whichever is later.
Mr Pickles’ final blunder was his letter’s reference to a limit on employers costs equivalent to 10.9% of pensionable pay bill. In contrast, the principles make it clear that any decision on costs should involve the LGA and unions and not be left to the Treasury and the Department for Communities & Local Government to decide
Principle 11. That the value of the ongoing scheme and the employer contribution cap within that value be set by agreement between the principal stakeholders of the scheme.
A tight timetable
As well as the 17 principles, the agreement between the LGA and unions sets out in detail an extremely tight timescale for the negotiations leading up to the scheme’s introduction in April 2014.
Following December’s exciting deadline, the next milestone is April this year by which time the LGA and unions must agree a number of contentious “big ticket items” including the all important and highly contentious contribution rates, accrual rates, revaluation rates and protections for those near retirement.
By the same deadline they expect to also agree the cap on employer contributions which helped to cause the recent rumpus and an outline plan for the controversial cost management mechanism which will activate if employer costs rise too high.
Even with the weekly meetings pencilled in, local government negotiators will have their work cut out over the next 12 weeks if they are to find agreemnt on all that. It’s unlikely that anything can top the drama of last month’s 11th hour shambles, but there will doubtless be further twists and turns before the next stage is over.