The Governments State Pension Reforms

Dear Colleagues,


The Coalition Government announced on Monday 14th January 2013 their intentions to reform the Basic State Pension. This announcement follows the Department for Works and Pensions consultation paper ‘A State Pension for the 21st Century’ which gave two possible options of reform. The RMT responded to this consultation.

The main points of the reform are:

· The introduction of a Single Tier Basic State Pension of £144 per week (in today’s earning terms) introduced from April 2017

The current basic means tested support (Pension Credit) is £142.70 per week for a single pensioner

· These reforms exclude those who have or will reach state pension age before April 2017

· The ‘Triple Lock Guarantee’ will continue. This is where the Basic State Pension is increased in line with CPI, Average Earnings or 2.5%. However, the method used to increase the Single Tier Basic State Pension will be confirmed before implementation

· The ending of the State Second Pension (formally SERPS)

· The end of Contracting-Out for Defined Benefit (DB) pension schemes from April 2017. Therefore employers and members will no longer receive reduced National Insurance Contributions (NIC) of 3.4% and 1.4% respectively. This rebate has already ended for Defined Contribution schemes i.e. Money Purchase

· To compensate for increase in employer NIC’s the government are proposing to allow employers to make changes to benefits or/and increase member contributions to the value of 3.4%. This will be a one of opportunity and it is proposed that trustee consent will not be required

· The government are also prosing to introduce overriding legislation to allow the above changes to affect those rail, electricity and coal workers who have protected status

· For an individual to receive the full Single Tier Basic State Pension they will need to have 35 qualifying years of NIC. Presently 30 years are needed to receive today’s Basic State Pension for a single person of £107.45 per week

· Those with less than 35 years NIC will receiving a lower Single Tier Basic State Pension pro-rata

· The ability to inherit or share a pension based on the NIC of a spouse or partner will no longer be available

· The increase of the State Pension Age from 66 to 67 between 2026 and 2028

While the objective is to make a ‘simpler and fairer’ state pension system, the Government fails this principle by excluding pensioners who would have retired before 2017. This will result in many pensioners still having to rely on means tested benefits.

The RMT are also concerned that the abolition of contracting-out will have dire consequences for the many DB pension schemes which already face funding problems. While the proposed statutory ‘window of opportunity’ is designed to compensate employers for the ending of the NIC rebate, the administered cost in adopting pension scheme rule changes or/and contribution increases will still remain.

However, the real losers will be pension scheme members who are likely to see their benefits reduced or/and contributions increased. While it is argued that DB pension scheme members will gain by the introduction of a higher Single Tier State Pension, this could be to the detriment of their occupational benefits.

This policy is nothing more than ‘robbing Peter to pay Paul’ by increasing NIC for both members and employers to fund the introduction of a Single Tier State Pension. The RMT believe that this policy is likely to be an ‘own goal’ with decent DB pension schemes closing and as a result workers still relying on the State handouts.

The power to allow employers to make benefit changes or/and increase members contributions without trustee consent is contrary to the principles of the Pensions Act 1995 requirement for Member Nominated Trustee (MNTs) on trustee boards.

This proposal undermines the very role of MNTs who make a significant contribution to running of DB pension schemes within the private sector. This contribution cannot be underestimated and is not just about making up the numbers on trustee boards to meet legislation requirements. MNTs play valuable role informing scheme members about the scheme, help maintaining membership and importantly giving members a voice on the day to day running of their future pension entitlement.

The RMT totally reject the view made by some employers that ‘trustee consent’ is a hindrance and that making changes to scheme rules is often problematic. The very fact that employer representatives in the majority instances are involved in the decision making process on a relevant trustee boards can only lead one to believe that this proposal is aimed at excluding MNTs from the decision making progress.

This proposal is nothing more than disingenuous to the majority of MNT’s who work alongside employers to for the benefit of all beneficiaries. Excluding MNTs from the decision making process would undermine the very fabric of the member involvement.

The Governments proposal to introduce statutory legislation to override Protected Persons Regulations so that employers can increase contributions or/and change benefits of those employees with protection status would be to the detriment of promises made prior to privatisation.

It needs to remember that Government policy dictated the privatisation of the railways, parts of London Underground (LUL), electricity, and coal, not those employed within these formally nationalised industries.

If a financial burden is being placed on the private sector DB pensions scheme as a result of Contracting-Out, than Government should put in place adequate provisions to ensure schemes remain affordable for all stake holders and that the above promises are honoured in full.

Let us not forget that many employers in the past have enjoyed surpluses in sections of the Railways Pension Scheme, and only recently pensioners have seen the true value of their pension payments reduced as a result of the switch from RPI to CPI. There were no complaints from the employers when these events happened.

It is the RMT’s believe that trustees should be involved in any changes to a particular pension scheme and that no employer should be given a ‘free hand’ to change contributions or benefits. Any changes to pension arrangements, whether they are increases to contributions or/and benefits changes, should be channelled through the relevant collective bargaining machinery. This procedure has been extremely successful in the past and should not be bypass because one or two employers want to railroad through detrimental pension changes.

We further believe that the Government’s proposal to introduce overriding legislation to protected persons legislation should be resisted at all costs. RMT representatives have recently met with other affected trade unions with the Department for Works and Pensions (DWP) to discuss these proposals and I would like to assure you that our position was made crystal clear. Further the DWP have issues a consultation paper regarding the above, which the RMT will be responding too.

I will keep informed of developments.

Yours sincerely,

R. Crow

General Secretary