Social care workers will have to work longer before they are entitled to full pensions if the government accepts the findings of Lord Hutton’s public sector pensions review, published last Thursday.
However, lower paid staff will see little difference in their entitlements if they are based on career average earnings rather than their final salary.
Hutton, the former Labour Cabinet minister reviewing pensions for the government, said public sector pensions should be moved to a career average revalued earnings (CARE) model and retirement age linked to state pension age.
This means that, from 2020, social care workers in the public sector would have to wait until they turned 66 to retire on a full pension. This would rise to 68 by 2046. The current retirement age for the Local Government Pension Scheme (LGPS) is 65.
This would put further pressure on public sector workers already faced with an increase in their pension contributions (see Q&A).
Brian Strutton, the GMB union’s national secretary for public services and a member of the policy review group for the LGPS, said Hutton’s failure to include a specified accrual rate for his preferred scheme meant the implications of a move to CARE were currently unclear.
Most social workers are members of the final salary LGPS, contributing between 5.5% and 7.5% of their salary, with employers covering about 14% of the overall bill. There are 4.33 million members of the LGPS in England and Wales but the average payment in 2008 was only £4,235.
The accrual rate in final salary schemes is 60, meaning a member will receive one-sixtieth of their final pensionable salary for each year of service completed.
Despite Strutton’s concerns, John Ralfe, an independent pensions consultant, said there was no chance that the government would set a different accrual rate for Hutton’s CARE scheme.
Instead, to bring costs down, Rolfe predicted the government would implement the planned increase in employee contributions of three percentage points by April 2012 and increase the retirement age for state pensions.
The government will respond to Hutton’s recommendations within the next few weeks.
What you need to know about the proposed pensions changes
● What is a Career Average Revalued Earnings pension scheme?
The final pension is based on a proportion of a scheme member’s average annual salary multiplied by the number of years of qualifying service, and revalued to take account of earnings increases over the life of their contributions.
● How will the changes affect social care workers?
Employees who end up at director level with a six-figure salary after spending most of their career in frontline practice and middle management will lose out. But lower-paid staff who occupy the same position for most of their career are likely to see little difference in their final pension.
● Would the move to CARE affect part-time and flexible working?
It appears there would be little benefit to staff under CARE if they moved to part-time working near the end of their careers. This is because the final-salary LGPS already makes allowances for people working part-time at the end of their career.
● What other factors will affect future pension contributions and values?
A major concern is the linkage of public sector pensions to the Consumer Prices Index, which does not include housing costs, rather than the Retail Prices Index from this April. Strutton said this could reduce pensions’ value by 15%.
In addition, local government employees will be expected to work for longer and make larger contributions, at a time when their wages are falling in real terms.
The most contentious issue may be the increase in employee contributions by three percentage points, due to take effect in 2012, though Ralfe suggested this could yet be the subject of a compromise between government and trade unions. Local Government Association chair Baroness Eaton warned last month that the rise could force many people to leave the LGPS, risking its future viability.
● When will the change happen?
2015, although the government has not confirmed this.
Your views on pension changes
● Rainbowarch The compulsory retirement age is far too low and we are all living much longer meaning we have longer to enjoy retirement, but also this creates extra cost for the government. I am very happy for the age to be increased to 70 if need be.
● romeo2001 Taxpayers should pay a fair and reflective wage for public services – there’s no reason why they should fund somebody’s retirement.
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