Guernsey Public Sector Pension Scheme proposals

1. Guernsey Public Sector Pension Scheme proposals

2. Purpose • To explain the basis of current pension arrangements and terminology • To outline the Guernsey States proposals for public sector pensions • To compare / contrast with UK developments • To take and answer questions on the proposals • Provide an opportunity for members to take a view on the acceptability, or not of the proposals.

3. Pension terminology (1) • State Pension Age (SPA) the age at which someone can get their ‘state pension’ • Normal Pension Age (NPA) the age at which you can access an unreduced pension from your occupational pension scheme • Minimum Pension Age (MPA) the age at which you can access a pension

4. Pension terminology (2) • Defined Benefit schemes (DB) – such as ‘final salary’ and CARE. Pension benefits are defined by the rules of the scheme and must be paid irrespective of the position of the pension fund. • Final Salary - pension is calculated on either the last year of earnings or over a few years prior to retirement. • CARE– each year of pension contributions (and not solely the final year(s))is calculated for pension purposes. UK public sector schemes moving to CARE. • Defined Contribution (DC) or ‘money purchase’. Pension is dependent upon growth of a ‘pension pot’ . Pension pot is based on contributions from employer and employee – return is not guaranteed

5. Pension terminology (3) • ‘Accrual’ – the rate that a pension builds up at, so 1/80th = 1/80th of pensionable pay for each year of pensionable service; • Example - £30,000 / 80 x 20 years = £375x20 years = pension of £7,500 • ‘Funded schemes’ – ‘unfunded schemes’ –’pay as you go’ – How schemes are funded. Guernsey is a ‘funded scheme’ with real assets and liabilities. NHS is ‘unfunded’ – no ‘pension pot’ but accounted for as if real. Pensions paid out of revenue.

6. Current arrangements (Nurses) • Pre-2008 • NPA60 (some members with NPA 55) • 1/80th • Final salary plus lump sum • 6.5% employee • 14.1% employer • 45 yrs max • RPI • Post 2008 • NPA65 • 1/60th • Final salary no lump sum • 6.5% employee • 14.1% employer • 45 yrs max • RPIX

7. ‘The politics’ • UK Hutton Report –’ work longer , pay more get less’; close final salary introduce care, increase retirement age and pay more in pension contributions. • Government (UK) should set a cap on the costs that they are prepared to incur • Employers moving from final salary; see UK Public and private sector, Jersey etc • Not just an ‘affordability issue’ – it’s also about ‘exposure to risk’ in the longer term • Public sector v private sector provision on Guernsey • ‘People living longer so receiving pension for longer’ – ‘work longer to deliver pension for longer in retirement’ • Not just about if a ‘case for change has been made’ – TUs did not accept the case for change in the UK • Guernsey – States do not want to continue to build up ‘final salary’ liabilities • Guernsey politics? States meeting Feb 2014

8. Guernsey process • Original discussions 2012 - outcome not accepted by trade unions (ASEO) • Further discussions 2013 and new proposals tabled – resulting in; • Delayed implementation to Jan 2015 • Increased protection from 5-10yrs • Reduction in proposed employee contribution from 8% to 7.5% • Phased increase in reduced contributions; 7% then 7.5% • Guaranteed ‘floor’ on employer contribution • Change to proposed pension increase cap in retirement from 5% to 6% with possibility of further review if over 7.5%

9. Proposals in summary • New scheme from Jan 2015 • Close ‘final salary’ and introduce CARE in Jan 2015 for ‘future pension benefits’ • Normal pension age (now 60/65) in CARE to equal state pension age – rising to 67 by 2031 • Accrual 1/80th and 3/80th ‘lump sum’ • Compulsory for new and part time staff • Employee Contribution to rise to 7.5% by Jan 2016 • Pension increases in service and in retirement at RPIX capped at 6% but with review • Additional pension benefits can be purchased in DC arrangement • Employer contribution rate 12% (max 14%) from14.1% • No maximum service

10. ‘Protections’ and interim arrangements • Start date put back from 2014 to 2015 • Members within ten years of their normal pension age as at 31/12/13 (increased from original 5 years) will have their normal pension age (55, 60 or 65) protected • Final salary benefits earned to Jan 2015 will be based on final salary at retirement and not as at 2015. • Phased increase in contributions: 7% from Jan 2015 and 7.5% from Jan 2016

11. The UK NHS • Public sector final salary schemes closing and CARE being introduced. Public Sector Pension Act does not allow final salary schemes to be negotiated in future. • Protection is on both retirement age and scheme membership : full protection and tiered protection • Retirement in CARE to equal state pension age • Contributions increased in 2008 to an average of 9.8% - average nurse will pay about 9.3% - could rise further • Employer contribution 14% • Increases in retirement capped at CPI (was RPI) • NHS CARE accrual 1/54th but no lump sum • Working Longer Review • Introduction of cost / risk sharing arrangements

12. How it will work…. • For consideration by States in February and if passed as proposed.. • Someone retiring before Jan 2015 no change • After Jan 2015 all future service will be at CARE • All service to 2015 protected on a final salary basis and final salary link remains for this service • Those within 10 years of NPA in Dec 2013 will retain their pension age so can retire at that point or later without a reduction in benefits.

13. Finally… • RCN view is that the proposals are ‘the best that can be achieved through negotiation’ • Rejection means serious consideration of industrial action – what are members prepared to do about it? • Members are asked to give a view in RCN ballot

14. Discussion / feedback • Views • Strength of member feeling • Acceptability or not • If rejection – what next?