Pensions, pension provision and age discrimination - potential implications for the MPS and MPA

ps/17/06
10 April 2006
MPA briefing paper

Author: Alan Johnson, MPA

This briefing paper has been prepared to inform members and staff. It is not a committee report and no decisions are required.

Summary

1. The recent strike by local government workers has highlighted the issues of pensions, pension provision and age discrimination. This briefing paper provides a summary of the main issues.

Local government dispute

2. The Office of the Deputy Prime Minister (ODPM) has recently been consulting on some proposed changes to regulations in respect of the Local Government Pension Scheme (LGPS). The most significant element of the proposals is that the 85-year rule should be abolished.

3. Under this rule, members can retire with a full pension if their age plus length of service adds up to 85. Members aged 60 and over that meet this criterion can retire automatically - those aged from 50-60 can retire with the consent of their employer. The Government’s position is that the 85-year rule breaches the recently published age discrimination legislation.

4. The unions key concern is that the ODPM and Local Government Association (LGA) are proposing that changes be made to existing members’ benefits from 2013. This is in contrast to other public sector schemes, including civil service and police officer schemes, where current members have benefits preserved. Of particular concern is the intention to abolish the 85-year rule.

5. This comes at a time when there are a number of other changes around pensions and pension provision.

Pensions Commission

6. The Pensions Commission, chaired by Adair Turner, has just published its final report proposing:

• increasing the state pension age for men and women to 66 by 2030, to 67 by 2040, and to 68 by 2050
• making the state pension more generous and link future increases in it to earnings rather than prices
• in future, making entitlement to the state pension based on residency rather than national insurance contributions
• enrolling people automatically into a new low cost government-administered savings scheme (National Pension Savings Scheme (NPSS))
• giving people the chance to opt out if it's not suitable for them, i.e. if they offer their own scheme and are making contributions at a higher level than would be the case under the NPSS.

Metropolitan Police Authority (MPA) and Metropolitan Police Service (MPS) staff will continue to benefit from a recent agreement between unions and the government allowing central government workers to collect their workplace pension at age 60. Retirement ages for police officers within the MPS depend upon the rank, e.g. for Federated ranks the ‘normal’ retirement age is 55. Thereafter officers can seek yearly extensions to the age of sixty, although any police officer can draw a full pension after 30 year’s service regardless of age or rank.

7. There are national discussions upon agreeing a single retirement age for police officers, but agreement in principle that the minimum recruitment age should be decreased from 18.5 years to 18 years of age.

8. However, like everyone else, police officers, police staff and MPA staff will not be able to collect their state pension in 2050 unless they are 68 if the Pension Commission’s proposals are implemented.

Simplified pension rules

9. In addition, on 6 April this year (sometimes referred to as A-day), new simplified rules came into effect around how pensions are taxed, offering simpler and more flexible retirement arrangements. For the majority of police officers and police staff this will include the following provisions:

• For the first time, the option is available to save in more than one pension scheme at the same time.
• There will be no limit on the amount of money that can be saved in a pension scheme or the number of pension schemes for any individual - although there will be limits on the amount of tax relief available.
• A-Day introduced flexible retirement, allowing people in occupational pension schemes to continue working while drawing their pension, where the scheme rules allow it.

Neither the New Police Pensions Scheme (NPPS) for police officers or the Principal Civil Service Pension Scheme (PCSPS) for police staff and MPA staff include the last provision at the moment, although a small number of police officers do have access to the national 30+ Retention Scheme The scheme enables forces to retain essential experience and skills particularly where there are difficulties in attracting and retaining officers. It enables officers to take a tax-free lump sum as if they were retiring, but they are then re-engaged at their former rank and pay.

Age discrimination

10. Finally there are the age discrimination regulations, which come into effect on 1 October 2006. The main points are:

• The regulations cover employment and vocational training. This includes access to help and guidance, recruitment, promotion, development, termination, benefits and pay.
• The regulations cover people of all ages, both old and young.
• Goods, facilities and services are not included in the regulations.
• All employees will have the ‘right to request’ to work beyond the default retirement age of 65 or any other pension scheme retirement age (see above) and all employers will have a ‘duty to consider’ requests from employees to work beyond the set retirement age.
• Occupational pensions are covered by the regulations, as are employer contributions to personal pensions. However, the regulations will generally allow pension schemes to work as they do now.

11. Although not directly related to pensions, the age discrimination regulations also place requirements on the employer if there are any benefits based upon length of service, specifically if the length of service benefit relates to service of more than five years, e.g. pay, annual leave. Such benefits may indirectly discriminate against women, e.g. those who take unpaid time off for children. This has implications for police officers, police staff and MPA staff, particularly around pay progression e.g. the constables pay spine has 11 spine points. There is an exemption if it reasonably appears to an employer that the use of length of service “fulfils a business need …. by encouraging the loyalty or motivation, or rewarding the experience, of some or all of his workers.” Nevertheless, longer pay scales will become increasingly difficult to justify.

Implications for the public sector and the MPA

12. The Employers Forum on Age suggest that the business case for an age diverse workforce is common sense because:

• The UK workforce is growing steadily older, which is causing the labour pool to contract
• Employers seeking skilled staff are experiencing chronic recruitment difficulties
• Corporate knowledge will be retained
• There will be higher levels of retention leading to an increased return on investment in staff, lower recruitment costs etc
• However, whilst the population is ageing this is not matched by lengthier participation in the workforce. This represents a growing productivity gap, whereby rising numbers of retired people are being supported by shrinking numbers of workers and this is not sustainable.

13. The Pensions Commission report, the simplification of the pensions system and the age discrimination regulations are addressing this ‘gap’. In addition, proposed changes to incapacity benefit and pensions, will aim to encourage greater participation in the workforce and the Government’s Opportunity Age strategy is intended increase the post-50 employment rate by one million additional older workers and promote “greater flexibility for over-50s in continuing careers, managing any health conditions and combining work with family (and other) commitments”.

14. There is growing evidence that employers encouraging staff to work longer, and redefining retirement, needs to be approached within the context of the work–life balance debate. Both the NPPS and the PCSPS enable workers to reduce their hours towards the end of their working lives, provided they have accrued their maximum pension entitlement, without affecting the level of pension. This is because the pension is based upon the individual’s annual, full-time pensionable pay.

15. For MPS and MPA staff there are a range of flexible working arrangements that can be offered to staff to encourage prolonged employment, including part-time working, job sharing, compressed hours or annualised hours. More than ever before the opportunity is now available to remove a set “cut-off” date for retirement.

16. In terms of recruitment and selection, the MPA have never 'discriminated' on age grounds and a small number of staff have been recruited at an age when most people are considering retiring, e.g. 58-59. As mentioned, the PCSPS has a 'normal' retirement age of 60.

17. Also for the MPA, for those who joined at an earlier age there has been the opportunity to seek yearly extensions beyond 60 subject to health and performance, and to date none of these requests has been turned down.

18. The issue the Authority has is in relation to recruiting at the other end of the age spectrum because the roles are predominantly quite 'specialised,' with the need for some level of skills and/or experience. There have been some initial discussions between the HR and Race and Diversity teams to see if this can be addressed.

19. The Employers Forum on Age also conducted some research amongst ‘leading’ UK companies whom together employ almost two million people. They found that most believed that age discrimination will have more of an impact than any other form of discrimination law; 75% believed that people of all ages will benefit from the new age discrimination laws; 80% believed it will increase opportunities for older workers and 44% believed employment lawyers will be the big winners.

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