Following constructive discussions with the firefighters’ trade unions, on 8 December I wrote to all of the firefighters’ trade unions to issue the cost ceiling for the firefighters’ pension scheme. This included a generous accrual rate, and provided protection for all those within 10 years of their current scheme’s normal pension age from any change in when they can retire, nor any decrease in the pension they receive at their current normal pension age.
The Government pay tribute to the importance of the work undertaken by our fire and rescue service and the bravery, dedication and professionalism of the men and women who work within it. The Government are committed to providing public service pensions that are sustainable, fair and effective.
Building on the proposals brought forward by Lord Hutton, these proposals aim to strike a balanced deal between public service workers and the taxpayer. They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs.
Public sector pensions will remain among the very best available—a guaranteed level and inflation proofed. Only one in 10 private sector workers has access to such schemes.
I am pleased to report that the Heads of Agreement for the design of a new pension scheme for firefighters in England has now been established. Each trade union with firefighter members will now consider the main design elements of a new scheme to be available for their members from 2015. Further work will take place over the coming weeks to establish the final details and Executives can consult members as appropriate.
I am particularly grateful for the manner in which firefighters’ trade unions have maintained a constructive dialogue over the emerging detailed elements of the new scheme. Further discussion will now take place through the scheme’s pension reform group.
There will be full protection for the accrued rights of existing scheme members:
all benefits accrued under final salary arrangements will be linked to the members’ final salary, in accordance with the rules of the members’ current schemes, when they leave the reformed scheme;
full recognition of a members’ expectation to double accrual for service accrued under the firefighters’ pension scheme 1992 (“the 1992 scheme”), so that a members’ full continuous pensionable service upon retirement will be used to calculate an averaged accrual rate to be applied to service accrued under the 1992 scheme;
members to be able to access their 1992 scheme benefits when they retire at that scheme’s ordinary pension age (i.e. from age 50 with 25 or more years pensionable service), subject to abatement rules for that scheme. Pensionable service for the purpose of calculating the ordinary pension age will include any continuous pensionable service accrued under both the 1992 scheme and the 2015 scheme;
members will continue to have access to an actuarially assessed commutation factor for benefits accrued under the 1992 scheme.
There also will be transitional protections for qualifying, existing members:
all active scheme members who, as of 1 April 2012, have 10 years or less to their current normal pension age will see no change in when they can retire, nor any decrease in the amount of pension they receive at their current normal pension age. This protection will be achieved by the member remaining in their current scheme until they retire;
there will be a further four years of tapered protection for scheme members. Members who are up to 14 years from their current normal pension age, as of 1 April 2012, will have limited protection so that on average for every month of age they are beyond 10 years of their normal pension age, they gain about 53 days of protection. The last day of protected service for any member will be 31 March 2022.
The main parameters of the new scheme are set out below:
a. a pension scheme design based on career average revalued earnings;
b. a provisional accrual rate of 1/58.7th of pensionable earnings each year subject to further agreement on the outstanding issues;
c. there will be no cap on how much pension can be accrued;
d. a revaluation rate of active members’ benefits in line with average weekly earnings;
e. pensions in payment and deferred benefits to increase in line with prices index (currently consumer prices index);
f average member contributions of 13.2% from April 2015, with some protection for new entrants. However, the Government will review the impact of the proposed 2012-13 contribution changes, including the effect of membership opt-outs, before taking final decisions on how future increases will be delivered in 2013-14 and 2014-15, and in the new scheme.
g. flexible retirement from the scheme’s minimum pension age of 55, built around the scheme’s normal pension age of 60, with members able to take their pension from minimum pension age as follows:
for all active members who are aged 57 or more at retirement, 2015 scheme benefits taken before normal pension age will be actuarially reduced with reference to the 2015 scheme’s normal pension age, rather than the deferred pension age;
all other members will have their 2015 scheme benefits actuarially reduced on a cost neutral basis from the scheme’s deferred pension age.
h. the normal pension age will be subject to regular review. These reviews will consider the increasing state pension age and any changes to it, alongside evidence from interested parties, including unions and employers. It will consider if the normal pension age of 60 remains relevant, taking account of the economical, efficient and effective management of the fire service, the changing profile of the workforce and the occupational demands of, and fitness standards for, firefighting roles
i. this regular review will be informed by such research carried out by the Firefighters’ Pension Committee, which will monitor and collate scheme data and experience;
j. late retirement factors for members retiring from active service to be actuarially neutral from normal pension age;
k. a deferred pension age equal to the individuals’ state pension age.
l. optional lump sum by commutation at a rate of £12 for every £1 per annum of pension forgone in accordance with HMRC limits and regulations
m. abatement in existing schemes to continue;
n. ill-health retirement and all other ancillary benefits to be based on the arrangements in the 2006 scheme
o. an employer contribution cap and floor to provide backstop protection to the taxpayer against unforeseen costs and risks.
The Government Actuary’s Department has confirmed that this scheme design does not exceed the cost ceiling set by the Government. Copies of the Heads of Agreement and the Government Actuary's Department verification report have been placed in the Library of the House.