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4. Busting the myth on NHS pensions (resolution)

Greater Liverpool and Knowsley Branch

That this meeting of RCN Congress urges Council to publicly defend NHS pensions and challenge the illusion of the gold-plated pension scheme for public sector workers.

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Progress report

Council Committee: MRC
Committee decision: Covered by existing work
Council member/other member/stakeholder involvement: Tracey Budding, Michael Brown
Staff contact: verity.lewis@rcn.org.uk , josie.irwin@rcn.org.uk

This issue was covered as part of the RCN’s work to respond to the Hutton Review of public sector pensions, both in its own right and as part of the national staff side. The College also holds the deputy chair position on the Pensions Sub Group of the NHS Staff Council.

The RCN attended a Unions 21 meeting with Lord Hutton in September 2010 and RCN staff have attended meetings with Lord Hutton in Northern Ireland (pre-report) and Wales (post-report). Lord Hutton’s interim report was published on 7 October 2010.

The RCN issued a press release on the interim report and made it clear that Lord Hutton’s proposals – that everyone has to pay more, work longer, and receive a career average rather than a final salary pension – could not have come at a worse time. Our concerns over the risk to services of the loss of staff good will, a reduction in morale and the impact on recruitment and retention was picked up by the national media

However, Lord Hutton did affirm that public sector pensions are not excessive or “gold plated” (a key part of the RCN evidence to his review and of the debate at Congress 2010) and he appeared committed to retaining a “defined benefit” element in public sector pension provision.

The RCN also submitted evidence to Lord Hutton’s second call for evidence. An RCN press release was issued on 7 December 2010 to coincide with our response. The RCN has argued that the changes already agreed by pension scheme members in the NHS scheme should be allowed to “work through”. In 2008 members agreed to tiered contributions (resulting in increased member contributions) and a risk sharing model (“cap and share”) where any future increased liabilities are resolved within the scheme and where the employer contribution is capped at a maximum 14%.

Lord Hutton’s final report was published on 10 March 2011, and the 2011 Budget of 23 March included a statement to take forward the report’s recommendations. The report still recommended a move to career average pensions, but, importantly, it stated that all existing contributions should be safeguarded. Changes to pensions are still up for negotiation, however, and the RCN will continue to push for protection.

The RCN was the only trade union present at a parliamentary breakfast launch of the Ignis Asset Management research “2010 Sharing the Pensions Challenge”. At this meeting we argued that employers should continue to be part of the risk sharing arrangements within pension schemes.

RCN Director for Nursing and Service Delivery, Janet Davies, has been involved in EPSU discussions on a response to the EU Green paper

The Comprehensive Spending Review (CSR) seeks savings to be achieved from the public sector pension schemes. The Department of Health wrote to the NHS Pension Scheme Governance Group on 14 January outlining the savings required. These savings are to be released by increases in member contributions of 3% on average over the period 2012/13 to 2014/15. NHS Trade unions are considering this letter.

Public consultation has commenced on the Government’s intention to change the method of pension indexation (the rate at which pension benefits increase) from RPI to CPI. This consultation closes on April 1 2011. Consultation is also underway on the “discount rate” to be used in public sector pensions. The NHS Governance Group (employers and unions) will be responding to this consultation before the closing date of March 3.

Debate report

Delegates overwhelmingly supported a resolution calling on RCN Council to defend NHS pensions and to challenge them becoming known as ‘gold plated’.

Seconding the motion, Gareth Phillips from the Gwynedd branch, quoted headlines from national newspapers which criticised the size of public sector pensions. He also referred to a claim from the Tax Payers Alliance that there were thousands of public sector pension ‘millionaires’.

He said: “They decline to notice that the average pension for a female nurse is £4,000, and for a male nurse it is £6,000.”

Geoff Earl, from the Lowthian branch, referred to Gordon Brown’s speech earlier that day where the Prime Minister ‘guaranteed’ that NHS pensions would remain untouched. Geoff said delegates should see whether the other political parties could give the same pledge ahead of the general election.

Supporting the resolution, John Hill from the Scunthorpe branch, said members should be challenging the use of the phrase ‘gold plated’ whenever they hear it.

He said: “If you know someone is talking about gold plated pension schemes, take it up and challenge them.
“If you see something in the papers relating to gold plated pension schemes, write a letter to the editor complaining about their use of vocabulary. If you hear it on the radio, ring up, get on there and counteract what has been said.”
From the Norfolk branch, John Devenney said Council should work with other unions for a stronger voice as the pension issue impacts across the public sector; while Shaun Claxton highlighted that it is nurses and their employers who pay into pension funds so it is their own money and should not be cut.

FOR – 436 99.32 per cent
AGAINST – 3 0.68 per cent
ABSTAIN - 2

Background

The NHS Pension Scheme provides a defined benefit, final salary pension to its members. In the private sector, however, employers are withdrawing or closing defined benefit pension schemes to new members, replacing these with defined contribution schemes which are subject to the vagaries of the stock market and do not provided a guaranteed level of retirement income.

Against a background of increasing pension costs and reduced pension quality and access in the private sector, the NHS Pension Scheme is facing unrelenting criticism by opposition political parties, business organisations like the Institute of Directors, and economic pressure groups – all of which state that public sector schemes are a drain on the tax-payer, unaffordable, and ‘gold plated’.

Some commentators are campaigning for public sector pension provision to be ‘levelled down’ to that being offered in the private sector. Opponents, however, argue that this would not have any beneficial impact on private sector pensions and instead argue that a ‘levelling up’ of pension provision is required to give employees in both the public and private sector access to pension arrangements which would provide adequate retirement income. Failure to provide such access would, they argue, result in greater numbers of pensioners falling into poverty in the future; these pensioners will require means tested welfare support, creating an additional burden on the public purse.

Myths abound in relation to the NHS Pension Scheme. For example, that the ‘unfunded’ NHS scheme is paid for by the taxpayer, when in fact both NHS employers and employees pay contributions to the scheme. In the current scheme the employer contribution is capped at 14 per cent, while employee contribution rates range from 5 per cent to 8.5 per cent. Future increases in the cost of the scheme will be paid for by scheme members only, either through higher contributions or a reduction in benefits.

There are claims that the NHS Pension Scheme is unaffordable – one independent commentator has estimated liabilities at £1 trillion. Latest government projections (31 March 2008) indicate that expenditure on public sector pension benefits will not exceed 2 per cent of GDP (gross domestic product), a figure which is considered sustainable. Furthermore, the £1 trillion figure is based on the assumption that the cost of paying pensions 40 years into the future must be paid, in full, tomorrow.

The average NHS Pension is around £7,000 for 18 years of service, while the typical (median) pension is £4,000. However, the NHS workforce is 80 per cent female and more than half of female pensioners receive a pension of less than £3,500. In the private sector, where the ordinary employee has no occupational pension scheme or a defined contribution scheme, the greatest disparity is between these employees and high paid directors; recent TUC research indicated the highest paid company directors have pensions of between £200,000 and £333,000 a year.

Tax payers effectively ‘pay’ a subsidy to private sector pensions, since money saved in pensions receives tax relief.

References and further reading
NHS Staff Council (2007) NHS pension scheme review: agreement between NHS Employers and the NHS trade unions, London: NHS Employers.
www.nhsemployers.org/payandcontracts/nhspensionschemereview/SchemeChanges/FinalAgreement/Pages/PensionReview-DetailFinalAgreement.aspx

Trades Union Congress (2009) Exploding public sector pension myths: a briefing for trade union members, London: TUC.
www.tuc.org.uk/extras/publicsectorpensions.pdf

NHS Pensions (2009) Scheme guide: NHS Pension Scheme. 
www.nhsbsa.nhs.uk/Documents/Pensions/SD_Guide_V3_-_06.2009.pdf