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Higher contributions
In November 2010, as part of plans to reduce
public spending The Government announced proposals to raise
pensions contributions for members of the unfunded public service
schemes so as to increase the total collected £2.8 billion p.a. It
also requires a further £900 million from contributions from
members of the Local Government Pension Scheme (LGPS)
These sums amount to 3.2% of pensionable pay
for the members of the schemes. The higher contribution levels were
proposed to be phased in over three years starting in 2012 (40% of
it in year one, 80% in year two and 100% in all subsequent
years.
The reason why contribution increases are
being pressed is that these save the Government money as soon as
introduced whereas cuts in benefits would only save money in the
future when benefits came to be paid. So a major part of the reason
was to do with reducing the Government deficit
Another reason is that the Government believes
public service workers pay too small a share of the cost of their
pension benefits. However, as noted elsewhere the benefits are also
under threat of a reduction and if that happened the member share
of the cost would go up anyway. The trade unions have argued that
the future level of benefits and contributions need to be looked at
together.
The Government has suggested that the low paid
should be wholly or partly exempted from contribution rises, with
those earning (whole time equivalent earnings) less than £15,000
exempted and those earning under £21,000 increasing by no more than
1.5% in total by 2014/5. This framework means that larger increases
would have to be paid by those on higher levels of pay and the
Government has suggested the maximum contribution increase for the
highest paid should be 6% in total by 2014/5
In July 2011 formal consultation began in
respect of the NHS, civil service and teachers schemes for an
increase in contributions to be implemented in 2012/3 averaging
1.3% of pensionable pay (40% of 3.2%). The proposals involve
increases ranging from 0% for the lowest paid up to 2.4% for the
highest paid. At the end of the consultation, despite many
objections, the Government decided to go ahead and implement the
increases.
Discussions are to take place on how, but not
whether, the further increases to be applied in 2013 and 2014 are
going to be structured, alongside continuing discussions on the
Government’s proposals to reduce benefits.
The contribution increase was recognised as
causing particular problems for the LGPS because of the large
numbers of members with low pay. The Government has proposed that,
since it is a funded scheme, benefit changes can substitute for
some or all of the required contribution increase. At present no
increase in contributions is expected in 2012 and discussions are
focus ing on introducing a package of revised contributions and
benefits for the long term in 2014.
While trades unions might accept that a small
increase in contributions, as proposed for 2012/3 might be
justified by the increase in cost of benefits, if those benefits
were going to be maintained, there is no acceptance that the
further increases in contributions are justified or that future
benefits should be reduced.
