PENSIONS CONSULTATION: UTU DRAFT RESPONSE
PUBLIC SERVICE PENSION SCHEMES: CHANGES TO THE TRANSITIONAL ARRANGEMENTS TO THE 2015 SCHEMES
The Ulster Teachers’ Union is the only locally-based teaching union in Northern Ireland. It represents approximately 6500 teachers and principals across all school settings including nursery, primary, post-primary and special schools. UTU has in its membership teachers at all stages of their careers and across all educational sectors.
UTU welcomes the opportunity to respond to this consultation.
UTU has responded to the questions which relate to our members in the NITPS.
Overall, of the two options presented, UTU favours the Deferred Choice Underpin (DCU). This is based on the fact that this option allows members of the scheme to base their decision not on assumptions about the future but rather on the known facts available regarding the two schemes at the point when it is most relevant to them; ie the point of retirement.
Members of the scheme on making their choice would require access to expert financial advice; it is the view of UTU that it would be impossible to provide the necessary support to all 130 000 public sector workers if the immediate choice option was enacted.
Either choice option will result in administrative costs. It is firmly the UTU position that no costs should apply to members of the NITPS as a result of remedying a situation created by Government which was deemed to be discriminatory.
Question 1: Do you have any views about the implications of the proposals set out in this consultation for people with protected characteristics as defined in section 75 of the Northern Ireland Act 1981? What evidence do you have on these matters? Is there anything that could be done to mitigate any impacts identified?
It is the position of UTU that these proposals will have a significant impact on younger members of the scheme who joined after 1st April 2012 for the following reasons.
These members do not fall under the scope of the consultation and will therefore not have access to any potential benefits of the final salary scheme for the 2015-2022 period.
Following the 2016 valuation process of the NI Teachers’ Pension Scheme changes were due to be introduced which would have led to an estimated improvement in the scheme accrual rate from1/57 to 1/47.1. These changes were put on hold due to the McCloud/Sargeant cases and may not now be accessible to these members who only have access to the career average scheme
Question 3: Please set out any comments on our proposed treatment of members who originally received tapered protection. In particular, please comment on any potential adverse impacts. Is there anything that could be done to mitigate any such impacts identified?
UTU agrees that the members who originally received tapered protection should have to make the same decision as other NITPS scheme members in respect of the period 2015-2022. It is possible that some tapered members would be better off receiving one type of benefit for the period 2015 to point of transfer into their new scheme and another for point of transfer to new scheme to April 2022. However, this would be giving these tapered members a choice not available to other members and may open the door to further claims of discrimination.
Question 4: Please set out any comments on our proposed treatment of anyone who did not respond to an immediate choice exercise, including those who originally had tapered protection.
UTU does not believe that members who did not respond to an immediate choice exercise can be deemed to have made a choice by default of accruing benefits in their existing scheme. There may be very valid reasons why a member does not respond within the suggested 12 month timeframe and to remove their choice is not acceptable. There is no guarantee that all members would be contacted within the allotted timeframe or, indeed, would have the opportunity to access the necessary advice.
This highlights the inherent weakness of the immediate choice approach as making an individual choice at the point of retirement when all relevant information is available will enable the individual member to choose the pension amount most beneficial for them.
Question 5: Please set out any comments on the proposals set out above for an immediate choice exercise.
Whilst Immediate Choice Underpin (ICU) could be deemed to resolve uncertainty for scheme members, it is inevitable that many members could end up having chosen the wrong option.
Many factors, both in relation to the two schemes themselves and deriving from the individual’s pattern of employment, will come into play and all must be carefully considered before a choice is made.
The consultation document proposes on-line facilitation of calculation of options on which to base immediate choice. UTU fails to see how future economic circumstances can be reliably predicted to the extent that the information provided at this time by these calculations could be deemed to be accurate and robust.
It is often the case that members do not give full consideration to pension arrangements and entitlements until close to the point of accessing retirement benefits. It would be the UTU’s contention that information around the ICU could prove to be very difficult to communicate effectively and many members will, in effect, have the choice made for them.
UTU opposes the ICU option.
Question 6: Please set out any comments on the proposals set out above for a deferred choice underpin.
The key advantage of the Deferred Choice Underpin (DCU) is that it is a choice made at the point benefits would be payable and at the time when the member has full knowledge of the benefit entitlements provided by the two benefit structures rather than a choice based on future assumptions.
This option is particularly beneficial for more recently qualified members who may have many years left in their career and are therefore many years away from knowing either what the economic situation will be like at the time of their retirement or, indeed, what their career path will ultimately look like. Leaving the choice until retirement when they would have full knowledge of those factors would seem to be much more appropriate and sensible.
The significance of the Annual Benefit Statement to members is brought into focus due to these proposals. Members will be able to monitor the emergence of the most beneficial choice for them as an individual and will have the opportunity to access any relevant support, whether from the Department of Education or independent financial advisors, required to clarify and explain the impact of choices on them.
The issues relating to potential tax implications and/or Annual Allowances as detailed in paragraphs 2.46 – 2.49 will need to be clearly addressed going forward with specific details and calculators for explaining the potential impacts.
The DCU is the preferred option of UTU.
Question 7: Please set out any comments on the administrative impacts of both options.
It is clear that both options will have significant administrative impacts.
The ICU option will require 130 000 public sector workers to be contacted within a very short period of time and be facilitated to make a decision for which they would require the appropriate information. It must be remembered that not all members covered by these proposals are currently active but must be afforded the same opportunities as those who are.
The DCU option will require two sets of different scheme benefit design to be shared with members on an annual basis over a time span in excess of 30 years.
What is critically important in both options is that there should be no cost to the schemes of the increased administration required. The government imposed these changes in 2015 which have been found to be discriminatory; neither scheme members nor employers should bear the cost of the changes now required. The Government must bear the full cost of any administrative impacts of both options.
UTU is totally opposed to the statement in para 2.57 that
‘The costs of removing the discrimination will feed into future employer contribution rates once the 2020 scheme valuations are completed.’
Any increase to the employer contribution rate could have future cost implications for the scheme which is completely unacceptable. This is the Government’s mistake and they must pay for it. It is also important to note that all teachers and other public sector workers are taxpayers and it is not a cost they should bear in that manner either.
Question 10: Please set out any comments on our proposed method of revisiting past cases.
All past retirements during the remedy period will have to be revisited. Members will have to make a choice between receiving a pension from their legacy final salary scheme or the career average pension scheme introduced in 2015 for the period from April 2015 to their retirement date.
The major complication which could arise is members revisiting automatic lump sum or lump sum commutation decisions. Members retiring from the NPA 60 scheme will have received an automatic tax-free lump sum of 3 times the pension. Members retiring under the final salary NPA 65 scheme or with some career accrual will have made a lump sum conversion decision which may have to be revisited.
This could involve possible arrears situations and overpayment situations. The fact that it is the member who is making the choice has the potential to minimise overpayment situations. The Government should give serious consideration to writing off any overpayments arising from transitional protection discrimination and any arrears.
Question 13: Please set out any comments on our proposed treatment of annual benefit statements.
UTU believes that annual benefit statements are critical to informing members of their potential benefits.
UTU would urge that, in order to ensure that members are in a position to make a fully-informed decision, a move is made towards providing this information on a more frequent basis, such as monthly as is the case in the English system.
An extension of the ‘MyPensionOnline’ system in place in England to incorporate the deferred choice option and also the members of the NITPS would be a welcome addition for teachers.
Question 14: Please set out any comments on our proposed treatment of cases involving ill-health retirement.
This is a very complex area as is recognised by the consultation document but nonetheless members who fall into this category must be afforded the same choices as others.
It is possible that members who were refused an ill health pension in one scheme could be eligible for an ill health pension in the other scheme.
One example would be a member in the CARE scheme who was denied an ill health pension because of the inability to prove an inability to return to work until the (higher) normal pension age.
Alternatively, a member who received an ill health pension with a higher level award in the final salary scheme may have been better off if they had been in the career average scheme due to enhancement in respect of potential lost service to a higher NPA.
Question 15: Please set out any comments on our proposed treatment of cases where members have died since 1 April 2015.
UTU welcomes the fact pertaining to this situation that the sensitivities have been recognised. However, where beneficiaries of a deceased member are entitled to an improvement in pension benefits, schemes should make good that benefit. The decision on which benefit structure to choose should lie with the beneficiaries or the member’s estate, with details of the different benefit structures being provided by the NITPS.
Question 16: Please set out any comments on our proposed treatment of individuals who would have acted differently had it not been for the discrimination identified by the Courts.
As opt-out rates are low in the NITPS this is likely to be a rare occurrence.
However, should such a situation arise, any such occurrence should be dealt with by schemes on a case-by-case basis. Whilst full combined contributions will have to be repaid to re-establish the pension rights, it should not be the case that a member should pay interest or other associated additional costs where it is established that he/she would have acted differently but for the Government’s unlawful discrimination.
Question 19: Please set out any comments on our proposed treatment of divorce cases.
The UTU accepts that where an earmarking or attachment order is in place, any choice will have to be exercised by the scheme member as to which scheme they choose for the remedy period.
Question 20: Should interest be charged on amounts owed to schemes (such as member contributions) by members? If so, what rate would be appropriate?
UTU does not believe that members should be liable for interest on any amounts owed to schemes. Any costs which arise from the Government’s unlawful age discrimination should be met by the Government as the error was theirs.
Question 21: Should interest be paid on amounts owed to members by schemes? If so, what rate would be appropriate?
It is the UTU position that interest should be paid on amounts owed to members by schemes. Again, these costs would arise from the Government’s unlawful age discrimination and, as such, should be addressed by them. Members should suffer no detriment.
Question 22: If interest is applied, should existing scheme interest rates be used (where they exist), or would a single, consistent rate across schemes be more appropriate?
Further information would be required here regarding the interest rates across schemes and what would the proposed single consistent rate would be. However, the preference would be for the higher of the existing scheme interest rates or a single consistent rate across all schemes to apply. Again, members should not be liable and suffer no detriment.
Question 23: Please set out any comments on our proposed treatment of abatement.
UTU welcomes the commitment in paragraph A68 that where deferred choice or immediate choice results in a retrospective increase to a pension, abatement would either not apply or would not be increased retrospectively.
Question 24: Please set out any comments on the interaction of the proposals in this consultation with the tax system.
The possibility of potential significant tax implications for some members of public sector pension schemes is highlighted in the consultation document and it is imperative that members are provided with full and clear information in relation to the potential tax implications of the choice they might make.
UTU welcomes the plan to compensate members for the difference in the annual allowance charge if career average benefits are chosen.