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Civil Service Compensation Scheme

Volume 520: debated on Tuesday 21 December 2010

I am laying before Parliament today the Civil Service Compensation Scheme (Amendment No.2) Scheme 2010 and the associated revisions to the Principal Civil Service Pension Scheme.

The new scheme will replace the old scheme which the previous Government tried to reform in February 2010. I first announced that the coalition Government intended to reform the civil service compensation scheme on 6 July 2010, following which the Superannuation Bill was introduced to Parliament on 15 July to ensure that reform of the scheme could not be vetoed by any one of the unions. Extensive discussions then took place between officials and Ministers and the civil service trade unions. Proposals were put to the Council of Civil Service Unions on 24 September. In the event, the council did not accept those proposals, but five of the unions—Prospect, the FDA, the Prison Officers’ Association (POA), the GMB and Unite—approached the Government directly and asked to continue discussions on those terms. There followed an intensive period of meetings between the five unions and officials, which on 5 October resulted in an agreement being reached between the negotiators on terms that might form the basis of a new compensation scheme. The five unions wrote to confirm that these terms had accurately recorded an agreement, that all their negotiating teams were able to recommend positively to their executives, as being the best that might be achieved in negotiation.

Subsequently, the POA’s executive committee voted to distance itself from that agreement and to request further discussion. The sixth union, the Public and Commercial Services (PCS) Union, had decided not to take part in the talks at the point when the five other unions had agreed to negotiate separately with the Government.

The Superannuation Act 2010, which received Royal Assent on 16 December, amended the Superannuation Act 1972 so as to remove the requirement for agreement of the civil service unions to any changes that could reduce the benefits of the compensation scheme. However, during the passage through Parliament of the Superannuation Bill, the Government agreed a number of changes to it, including a further amendment to the Superannuation Act 1972 so as to introduce a clear requirement that future consultation on any changes that would reduce the value of the civil service compensation scheme must be undertaken

“with a view to reaching agreement”

and that a report is made to Parliament setting out the details of the consultation that has been carried out with the unions.

During the Superannuation Bill’s passage through Parliament, the Government remained committed to trying to reach an agreement with the Council of Civil Service Unions and offered every opportunity to those unions that wished to engage constructively in negotiations. Five of them did so, and their proposals formed the basis of the discussions and subsequent agreement on which the new proposed scheme is based.

On 9 November, the Council of Civil Service Unions wrote with suggestions for areas that could be considered in further talks, and I responded on 15 November. The suggestions made in the council’s letter would have had the effect of reducing the level of compensation paid to many lower-paid civil servants, and I therefore did not wish those suggestions to form the basis of further discussions. Having a new scheme that provides genuinely better protection for the lowest-paid civil service workers, many of whom are members of the PCS, has been an important aim of the Government throughout the discussions on reform.

I explained to the Council of Civil Service Unions that, in the absence of detailed proposals from the PCS, work would have to proceed on drafting the rules for a new scheme. On 6 December 2010 officials sent the draft rules for the new compensation scheme to the Council of Civil Service Unions to seek its views. Those rules form the basis of the new compensation scheme, which is being laid before Parliament today.

The Superannuation Act 2010 provides a fall-back position by introducing statutory caps on compensation which would be applied if, for any reason, the Government cannot implement the new proposals. The Government are now in a position to be able to repeal the caps set out in the Act through the Superannuation Act 2010 (Repeal of Limits on Compensation) Order 2010, which comes into force today. The repeal means that the statutory caps of a maximum of 15 months’ pay for voluntary departures and 12 months’ pay for compulsory departures, will not apply to the new civil service compensation scheme that is starting on 22 December 2010. The key points of the new civil service compensation scheme are as follows:

Voluntary Redundancy

Below normal pension age (either aged 60 or 65)—one month’s pay per year of service up to 21 months, with a taper of between a maximum of 21 months’ and six months’ compensation for those approaching pension age;

At or above normal pension age—one month’s pay per year of service up to a maximum of six months;

Staff who have reached minimum pension age (either aged 50 or 55) can choose to opt for early retirement on their current pension entitlement. Staff will be asked to surrender some (or all) of their severance payment to meet the cost of receiving this pension early.

Period of notice

All staff will be entitled to at least three months’ notice.

Compulsory Redundancy

One month’s pay per year of service up to 12 months. All staff who may face compulsory redundancy will first have had the opportunity to exit under voluntary terms.

Low and high pay thresholds

All staff earning less than £23,000, on a full time equivalent basis, will be treated as if they earn £23,000 for the purpose of calculating their redundancy payments.

There will also be an upper pay threshold of £149,820. Staff earning more will have their salary capped at this figure for the purpose of calculating their redundancy payments.