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UK revises public pensions offer, stands by contribution increase

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  • UK revises public pensions offer, stands by contribution increase

UK - The UK government today stood by its proposed 3.2% contribution increase for public sector pension schemes while abandoning plans to decrease scheme accrual rates gradually to as little as 1/68th.

Speaking in the House of Commons, the Chief Secretary to the Treasury Danny Alexander outlined an offer presented to unions ahead of proposed strike action at the end of the month.

Alexander acknowledged that the issue of pensions was "contentious", but he stressed the importance of reform and said "significant progress" had been made in negotiations between the government and the general secretary of the Trades Union Congress (TUC), Brendan Barber.

He said proposals to amend the accrual rate for the new schemes to 1/65th - as recommended in Lord Hutton's review of public sector pensions - had been abandoned.

"Future schemes will now be based on a pension to the value of 1/60th of average salary, accruing for each year worked," he said. "That is an 8% increase on the previous offer."

He added that schemes would be granted the "flexibility" outside of the cost ceilings outlined by the Treasury to guarantee that no member within 10 years of retirement would see their retirement date changed or the pension payable decrease.

Previous proposals only allowed for the accrual rate to stay constant for members earning less than £15,000 a year, with a gradual change in the rate to 1/68th for those earning above the threshold put out to consultation.

However, the Treasury said it stood by its decision to increase member contributions by 3.2% for the unfunded schemes, while saying that any change for Local Government Pension Schemes (LGPS) - the funded arm of the system - would be agreed in an ongoing consultation with the Department for Communities and Local Government.

It said that, therefore, the LGPS cost ceiling of a maximum of 20.4% in contributions - with 9.5% coming from members and 10.9% funded by the local authority - should only be viewed as indicative, rather than final.

Graeme Muir, partner at Barnett Waddingham, speculated the Treasury's pledge to increase benefits in line with earnings could mean the funded schemes could keep final salary payments in place if these could be "justified".

"It does seem hard to believe that whilst there are good reasons to treat the Local Government Pension Schemes (LGPS) differently; that this extends to retaining a final salary formula - albeit a career average scheme with earnings revaluation - is not a million miles away anyway," he said.

Responding to the proposals, the shadow chief secretary to the Treasury Rachel Reeves criticised the government for pre-empting Lord Hutton's report by announcing the 3% contribution increase in last year's spending review.

Reeves, Alexander's counterpart in the opposition Labour party, said the government had not been acting "in good faith", choosing instead to act unilaterally.

The Treasury stood by its decision to shift all schemes from a final salary to career-average revalued earnings (CARE), while Alexander said the final salary portion of the pension payment would be based on salary at the time of retirement, rather than at the point the scheme was amended.

It added that the normal pension age in all funds would be linked to the state pension age, meaning any increase in the latter would automatically be taken into account - enabling the government to compensate for increasing longevity.

Responding to the proposals, the TUC noted the "improved" accrual rate, with the union's public services liasion group (PSLG) saying it welcomed the change.

It added that it had come "as a direct result of the strength of feeling and determination shown by public sector workers and the groundswell of support for the TUC's day of action".

The PSLG added that it would consider the proposals, noting that the disputed contribution increase, as well as the switch in indexation to the consumer prices index, remained in place.

"Unless and until further real progress is made and acceptable offers are made within those negotiations, unions remain firmly committed to continuing their preparations for the planned day of action on 30 November," it said.

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