The government has launched a consultation on its approach to reforming two schemes within the Nuclear Decommissioning Authority’s group, after proposals for a bespoke career average revalued earnings scheme were accepted by unions in 2017.
Legislative change would be needed to convert the final salary section of the Combined Nuclear Pension Plan and the SLC section of the Magnox Electric Group of the Electricity Supply Pension Scheme.
The 2011 Hutton report saw many public sector pension schemes move from final salary to Care.
What’s really important for members is that the consultation ensures that those protections are put back in place
Neil Walsh, Prospect
The two nuclear schemes are now set to make the same move to less expensive benefits, following consultations in early 2017.
The Department for Business, Energy and Industrial Strategy consultation – which was issued this month and runs until July 5 – is seeking views on the proposed changes and impacts.
Putting protections back in place
Members of the two schemes are covered by protection arrangements put in place when their sponsors were privatised. However, because the NDA is classified as public sector, the government decided the schemes should be reformed under the Public Service Pensions Act 2013.
Schemes within the NDA’s group are “within scope for reform, with estimated savings currently expected to total in the region of £200m”, stated the government consultation.
Last year, the NDA consulted on different options for reforming these schemes, with a total of roughly 10,160 members.
It worked with the Department for BEIS and trade unions to develop an agreed pension scheme tailored to the characteristics of the affected NDA employees.
A proposed bespoke Care scheme, which is in line with the reforms already implemented in respect of other public sector schemes, was accepted by trade unions following statutory consultation with affected employees and a ballot of union members. It was also agreed that the average member contribution rate would be 8.2 per cent.
One of the key proposals is to amend the relevant statutory pension protections to enable public service pension reforms to be implemented to the NDA schemes, “in such a way that the reformed level of pension provision is preserved in the future”.
David Davison, director and owner of consultancy Spence & Partners, noted that the protections meant that post-privatisation, “nobody could have benefits any worse than the benefits they were actually getting prior to privatisation”.
That level of protection needs to be removed in order to make those changes.
“Obviously, from the trade unions’ point of view, it’s making sure that that employer statutory override has fairly specific limitations,” said Davison.
Neil Walsh, pensions officer at Prospect – one of the unions involved in the discussions last year – said: “All of these members were covered by statutory promises that their pensions would never change… What’s really important for them is that the consultation ensures that those protections are put back in place.”
While it could be argued that there is no point doing this if they are not preventing this set of changes from happening, Walsh noted that it “puts back another hurdle for any government to get over”, to implement any further changes.
Proposals to maintain fairness
Another proposal included in the consultation is to provide the lead employers, the appropriate government minister or the Government Actuary’s Department with the power to adjust the different contribution rates paid by members in various salary bands to keep the overall average balanced at 8.2 per cent, although the measure is yet to be confirmed.
Across the broader public sector, government policy post-Hutton has been to introduce an average 3.2 percentage point increase to average member contributions, but provide protection for the lowest paid.
To bring the average rate to the 8.2 per cent agreed for the affected NDA employees, the consultation proposes to boost the average member contribution by 3.05 percentage points. It would also introduce salary bands so higher earners provide the majority of the increase. This change would be phased in.
While that increase would initially be below the level required by government, promotion or economic factors mean active members are likely to move up through the salary-banded contribution rates. This would increase the yield to the pension funds to more than 8.2 per cent, and the average member contribution would increase by more than the 3.2 percentage points required.
To address this, the government has suggested several options. One of these is to “provide a responsible person or body” with the power to adjust member contribution rate thresholds to keep the yield balanced at 8.2 per cent.
“That’s a sensible move, to maintain fairness,” said Davison, adding that the GAD would be a neutral option.
Walsh agreed: “There does need to be a mechanism to ensure that the yield is maintained at the agreed rate”.
