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THE NEW
FIREFIGHTERS' PENSION SCHEME
Information
on 2004 - 06 Proposals for change
Part 2: A New
Firefighters’ Pension Scheme
The Firefighters’
Pensions Committee has been meeting regularly since September 2005 to
consider
and agree the content of the new Pension Scheme required by Ministers
following
the 2004-2005 consultation exercise.
We have previously
stated our opinion that a new scheme is not necessary and that we do
not agree
with the assumptions about future change to the role and duties of
firefighters. These assumptions, contained in last year’s consultation
on a new
scheme and changes to the current scheme, suggested that the change of
emphasis
from intervention to prevention would lead to a far greater proportion
of fire
and rescue service staff being employed in non-operational roles.
Drawing the
parallel with the police service for which a normal retirement age of
55 has
been set, we fail to see why the fire and rescue service should be
treated
differently. In our view the physical demands of the FRS are similar to
police
service perhaps even more demanding. The police service is subject to a
similar
shift of emphasis towards prevention but we have not seen similar
assumptions
made about a decline in the number of operation roles.
Taking other
factors, such as increased normal retirement age and less rigorous
selection
testing, into account we believe that there is a strong possibility of
increased ill-heath retirement amongst members of the new scheme. If
this
proves to be the case then the costs of the scheme will increase and
these costs
will be borne by both employers and scheme members – within set limits.
It is
unlikely that another ‘time-bomb’ will be created as the cost of the
new scheme
will be reviewed periodically and adjusted as necessary. Nevertheless,
we do
not believe that it is in firefighters’ interests to create a pension
scheme
that will be subject to cost variation of the extent that we
anticipate.
The FBU and FOA met
with the Government Actuary’s Department on 19th December to
discuss
the background actuarial assumptions that were used in costing the new
Firefighters’ Pension Scheme. We strongly believe that assumptions on
the
ability of firefighters to work until age 60 are flawed as is
Government’s
belief that the firefighter’s role will significantly shift towards
preventative duties.
However, since
Ministers are intent on introducing a new scheme, we believe that we
have a responsibility
to participate in the development process in attempt to secure the best
possible pension provisions for future members of the fire and rescue
service.
This also provides an opportunity to improve some areas of provision,
such as
the ability to count more than 30 years service for pension
purposes.
From our
consultation with members, there was a clear message that new members
of the
service would know what benefits could be obtained from membership of
the
proposed new Firefighters Pension Scheme and that it would be based on
lower
contribution rates. We detected no strong desire for a campaign of
resistance
to a new pension scheme.
We are forced to accept
that the basis of the new scheme is unlikely to change at this stage
and we
that a realistic view must be taken. We are able to accept the
introduction of
a new scheme provided that regular reviews are undertaken to ensure
that the
scheme is capable of coping with the future demands of the service and
to
ensure that another ‘time-bomb’ does not explode in 35-40 years’
time.
We have attempted to
protect future members’ interests but, to a large extent, Ministerial
direction
has prevented real debate on the fundamental issues and we are placed
in the
position of attempting to achieve the best provision within the
limitations
imposed.
Retirement age
Many of the
existing provisions will remain within the new scheme but the main
change will
be that the scheme will be based on a normal retirement age of 60
rather than
50 although it will be possible to take ‘voluntary early retirement’,
at 55
with an actuarially reduced pension.
The Normal Retirement
Age (NRA) will be 60 and the normal pension will be 40/60th
final
salary, based on 35 years’ service. However, service beyond 35 years
will be
counted for pension purposes up to a maximum of 5 years to provide a
pension of
45/60ths final salary.
Provision will be
made for the service to retire people where, for reasons of efficiency,
the
service wishes to reduce the number staff employed.
- This proposal was
the subject of some debate within the Committee as concerns were raised
about
potential use of the provision as a replacement for agreeing the terms
of any
required redundancies. We were, however, reassured that the Scheme
merely
allows early retirement (without actuarial reduction) to be available
as an
option during when negotiating terms of any establishment
reduction.
Pensionable
pay
There has already
been some debate on which elements of pay should be considered
pensionable and,
to date, no agreement has yet been reached.
- ODPM and the
employers seem to favour only core pay being counted for pension
purposes which
would mean that any allowances or additional payments would not be
pensionable.
We made submissions stating the view that any payment paid in
connection with a
specific role should be treated as core pay for that role and as such,
be
pensionable. Flexible-duty allowance and some responsibility payments
would
fall into this category.
- It is accepted that
some people may appreciate increased take home pay through not paying
pension
contributions on certain elements of pay. Comment has been made that
members
could choose to invest the savings in separate pension arrangements if
they
wish but we feel that investing this in the firefighters pension scheme
would
be more beneficial and in the longer term interest of members.
- Clearly, it is not
in members’ interest to pay contributions on any payment that is only
received
for a short period, except in the last three years of service, as no
benefit
would be realised at the time of retirement. There will be a
split-pension’
provision that allows a member to split service into two parts where,
for
example, a member chooses to move away from a flexible-duty post. This
would
create a frozen pension based on the higher rate of pay and remaining
service
on a lower rate would provide a second pension. The two pensions would
be
together at the time of retirement to produce a pension that that takes
account
of higher paid service.
- There has been
pressure on the fire and rescue service to move to a career average
basis for
its pension scheme, indeed this was one of the options available in the
consultation document. We argued for the retention of a final salary
scheme as
we believe this to be most beneficial, given that the salary of most
scheme
members increases during their service.
- In submissions on
the determination of pensionable pay and pension protection some of our
arguments for pensionable status of flexible-duty allowance and
responsibility
payments, particularly protection arrangements for members who lose
such
payments, come close to arguing for a career average scheme. We,
therefore,
need to exercise caution as arguing the case too strongly could open
the door
to discontinuation of the final salary approach. Recent closures of
private
sector final salary schemes should ring warning bells.
- Many issues
relating to what constitutes pensionable pay are dealt with under the
Scheme of
Conditions of Service (Grey Book) and the Firefighters Pension
Committee is not
in a position to deal with these. The matter has, therefore, been
referred to
the NJC requesting staff and employer sides to make submissions to the
committee. In the longer term, it might only be possible to establish
the
definition through the full NJC process.
Ill-health
benefits
Injury benefits not
be contained within the Scheme but they will be available via a
separate
statutory order which will also provide a statutory basis for ‘Grey
Book’
provision to compensate for death and serious injury at work. (You may
recall
that the previous provision was declared ultra vires by the Audit
Commission as
there was no statutory provision to allow payment by fire authorities).
Ill-health benefits will
of a two-tier nature with the level of award being
determined by opinion on a person’s capacity to undertake regular
employment.
Ill-health awards remain
subject to periodic review to establish whether the Scheme
member’ should remain on the higher level or whether their health has
improved
to the extent that they are no longer eligible for an ill-health
pension. In
the latter case, the authority may require the member to return to work
(this
is no different to existing arrangements).
- We find it
difficult to argue against the proposals for ill-health enhancements as
Ill-health enhancements are not an automatic right and they are
intended to
compensate for a member’s inability to undertake work outside the
service.
Where members are genuinely unfit, we wish to see that they receive all
possible assistance - especially where the reason for retirement is
work
related.
- It was proposed
that ill-health pensions could be reviewed for an indefinite period
post-retirement.
However, at the FOA’s request, the committee agreed to the introduction
of a
time limit of 10 years or normal retirement age whichever is the
sooner. We
believe that this offers some long term financial stability to members
who
could, if their health improved be forced into the jobs market. Having
been out
of employment for several years we considered likely that the member
would at a
disadvantage in this competitive environment.
Commutation
It is currently
proposed that the new scheme will abandon the use of commutation tables
in
favour of an equal system for all members where the commuted lump sum
is
multiplied by a value defined in the Scheme. It is currently proposed
that this
value should be 12 which is the figure being applied to other public
sector
pension schemes.
- We have seen no
justification for the use of a 12:1 ratio for commutation, only that it
is the
figure being used by other schemes. Despite the short-term cost
increase,
commutation of higher proportions of pension reduces the long term cost
of the
scheme to fire and rescue authorities. It would, therefore be in their
interest
to agree a higher ratio. The proposed 12:1 ratio would reduce the lump
sum
below that produced by the present commutation tables, particularly for
women.
We favour a figure of 17.25% which would avoid any perception of
particular
groups losing out.
Tax
There are no
proposals to tax lump sum payments but from April 2006 tax rules will
change
with the impact on pensions that any tax will be charged if the
‘lifetime
value’ of the pension exceeds the Inland Revenue limit. This limit will
initially be £1.5 million which will affect those earning over
approx. £115,000
per year.
Commencement
The ODPM seems
intent on the Scheme taking effect for new entrants to Fire and Rescue
Service
from April 2006. However, it is unlikely that the Scheme will have
statutory
effect until later in the year.
Authorities will
not be empowered to deduct new lower rate contributions from members
and it has
been suggested that contributions would be taken at 11% using existing
powers
during the interim period – with refund of excess payments made once
the new
scheme comes into effect.
- We do not believe
it right that firefighters should be required to join a pension scheme
that is
not legally in force and new entrants should have continued access to
the
current Scheme until such time as the new Scheme becomes legal.
Send
comment to: pensions@fireofficers.org.uk
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