Members Update 14/10 [Not for external distribution]

Transcription

1 Fire Officers Association London Road Moreton-in-Marsh Gloucestershire GL56 0RH Telephone: Website: Members Update 14/10 [Not for external distribution] To all members and associate members November 2010 Members update: Regional Control Centres and Fire Service Pensions 1. Regional Control Centres Everyone in the FRS is well aware that the FiReControl project is extremely over budget and subject to ever-lengthening delays. This has been a cause of great concern and uncertainty to existing control room staff for several years already and it now looks as though the uncertainty will get worse On 15 th November, Bob Neill (Parliamentary Under Secretary of State, Communities and Local Government) told the House of Commons that the Government had, in June this year, activated a key milestone in the contract with the main contractor, EADS (now branded Cassidian), for delivery of the FiReControl project. This required EADS to complete the main system in three control centres by mid Because EADS record has not improved on delivery of the project, they were informed (on 8 November) that they are considered to be in material breach of their obligations under the contract and required them to remedy the position in 20 working days. The Minister has made it clear to EADS that they must deliver to time, cost and quality. The Government are not going to bail out this contractor with additional public funding and they will stand up for the interests of the taxpayer and the fire and rescue service. It currently appears unlikely that EADS will be able to fulfil the contract in its present form and that legal action will be necessary to deal with the breach of contract. This will, of course, cause further delay and uncertainly about members future employment status. Because of the vast sums already invested in the project, we consider it unlikely that the project will be abandoned at this stage. However, it may look different once the EADS contract has been renegotiated or re tendered as might be necessary before any meaningful progress can be made. Apart from the problems for control room staff who remain unsure about their future, continued delay is creating crisis for services whose control rooms are rapidly becoming out of date. In such services, facilities and equipment are in need of replacement as their useful lifetime was geared to the original timetable for transferring functions to the new Regional Control Centres. With additional delays, services will not be in a position to continue service provision without some reinvestment in their existing control rooms. However, in the current economic climate there is no real prospect of money being available for investment in a single service control room and other options, such as transferring functions to neighbouring services, are being considered. 1

2 There is currently very little clarity about the future of the FiReControl Project but we believe that it will continue along similar lines to those originally planned but it is possible that the project s management will pass to the fire and rescue service under the Government s localism agenda, perhaps being via a lead authority arrangement. We will keep a watch on this worrying situation which could require an early transfer of functions and staff transfer or redundancy outside of the terms being negotiated for the FiReControl Project and protection afforded by the Transfer of Undertakings (Protection of Employment) Regulations. You will be updated as we become aware of developments. 2. Fire and Rescue Pensions a. Contribution rates As discussed in Members Update 13/10, the interim report of the Independent Public Sector Pensions Commission, made it clear that a short term initial cost-saving action would be to increase employee contribution rates for members of public sector pension schemes. This amounts to a 3.2% average across public services to deliver the 1.8 billion Government target. The impact for fire and rescue pensions was discussed at a meeting of the Firefighters Pension Committee (FPC) on 17 th November. We, and other FPC members, understood that CLG would be seeking guidance on whether the average 3% contributions would apply across the board or whether they could vary between different public pension schemes according to the current proportion of scheme costs paid by members. However, it appears that CLG did not make a case for variation to the Treasury and they reported that the increase would be applied equally to all schemes. We shall, therefore, be writing to CLG ministers to argue that it would be unfair to apply the same rise to the firefighters schemes since they already pay a higher proportion of costs than those in many other public schemes Assuming that a 3% increase would apply to fire pensions, CLG prepared indicative figures for spreading the increase over a three-year period, from 2012, whilst also introducing tiered contribution rates. The following tables below (produced by CLG) show what is currently being paid and what is proposed. Existing Contribution Rates Employee Employer* Total rates at 2007 valuation Proportion of total rate met by employee Firefighters Pension Scheme % 26.5% 37.7% 29.17% New Firefighters Pension Scheme % 14.2% 23.7% 35.86% *Employers pay a contribution of 21.3% (FPS) and 11% (NFPS) plus an ill-health charge (based on the 2004 review assessment of the value of the ill health contribution) so the figure in this column shows the overall cost to the employer. Tiered Contributions The introduction of tiered contribution rates has previously been discussed as a possible cost-saving measure for the fire and rescue pension schemes; however, nothing was formally proposed or agreed. The matter is now re-emerging as it is believed that tiered payments will be recommended in the Hutton Commission s final since they are already a feature of other public schemes such as Health and Local Government. There is some logic in the argument that, a final salary scheme, disproportionally benefits people whose earnings rise towards the end of their careers as their pension is based on a level of earnings at which contributions may have been paid for as little as one year. It is this argument that may result in the conversion of all public sector schemes to career-average schemes where the level of pension benefit is based on a person s average earnings over their service. 2

3 Proposed Groupings for Tiered Contributions Role Pay + Numbers FPS NFPS * Firefighter (competent), crew & watch manager 28k + 23,600 4,654 (regular) 6,580 (RDS) Station manager 40k + 2,580 Group manager 46k Area manager 53k Brigade manager 75k We have used the upper pay boundaries on the assumption that with flat pay scales the majority will be on the maximum. If average pay is lower than this then the yield from tiers will be lower, if average pay is higher because of the effect of pensionable allowances, then the yield will be higher. * We have assumed that most members of the NFPS will be in firefighter, crew or watch manager roles given the age of the Scheme. Proposed increases in contribution rates If the target additional yield in each of the three years was set at is 10.1m, this might be achieved by increasing: In the first year: All members of the FPS by 1% to 12% Station Managers & Group Managers by additional 1% to 13% 1.34m Area & Brigade Managers by additional 2% to 14% 0.45m Total 10.09m Proportion of total payroll 1.0% In the second year: All members of the FPS by 1%, i.e.13% basic & 14% Station Officers & Group Managers and 15% for Area & Brigade managers Area & Brigade managers by additional 1% to 16% Total 0.23m 8.53m Running total 18.62m Proportion of total payroll 1.8% In the third year: All members of the FPS by 1%, i.e. 14%, 15% & 17% All members of the NFPS by 1% to 9.5%, and introduce Tiered contributions Total 2.0m 10.1m Running total 28.72m Proportion of total payroll 2.8% Increase in yield spread evenly across membership Firefighters Pension Scheme % 4.2m 1% New Firefighters Pension Scheme % 0.9m 1% 1.8m 3

4 Increase in yield from tiered contributions Role Pay range % Yield Station Officers 40k 0.5% 0.51m 1% 1.03m 2% 2.06m Group Managers 46k 0.5% 0.16m 1% 0.31m 2% 0.62m Area Managers 53k 0.5% 0.05m 1% 0.11m 2% 0.21m Brigade Managers 75k+ 0.5% 0.06m 1% 0.12m 2% 0.24m FPC members did not disagree with the proposal that it would be unfair to apply increases equally to members of the 1992 and 2006 Schemes. All staff representatives had some difficulty with the scale of the increases suggested and indicated that they could not willingly agree to this. Whilst the FBU may believe that any increase is unacceptable, we understand that an increase cannot be avoided when it results from central government direction that applies across the public sector. That said, the FOA acknowledges that the 1992 Scheme is putting fire pensions funding under financial pressure and that the cost will have to be reduced if the scheme and its benefits are to be preserved. Even then, there is no certainly about its survival. However, in terms of spreading the cost fairly, it might not be appropriate to introduce tiered contributions at this time. As, by 2015, it would result in contribution rates of: 14% for Firefighter to Watch Manager Roles 16% for Station and Group Managers 17% for Area and Brigade Managers The level of increase proposed above would be particularly expensive for middle managers without raising a great deal of additional revenue and when a rise to 14% will be painful enough. If, in due course, tiered contributions are required as a result of the current review, they can be considered but we suggest that they should not be volunteered at this time. Pensions Tax Regime To update members on the information provided in Update 13/10, there is some hope that HM Treasury will make allowances for members of the fire and rescue service who would suffer financially if promoted after 20 years service. Currently, no special allowances or concessions have been made for schemes with fast accrual. The FPC s response to the discussion document suggested that smoothing of accrual could be applied for those who have reached double accrual (in other words, spreading the effect of double accrual over the whole of pensionable service). CLG has asked the Treasury to look at this issue again but no response has been received to date. Similarly, a response is also awaited regarding the means by which annual allowance may be paid including whether liabilities can be rolled forward and paid from pension entitlement rather than current income; whether the pension scheme could pay the charge on behalf of the individual to be recovered later, over time. 4

5 Whilst, HMRC guidance suggests that unused allowance from the previous three tax years can be used to offset liabilities, clarification of the position is being sought by CLG since there is a view that the current year s allowance could be used in addition to the previous three years. Obviously, access to a 200,000 allowance could be extremely helpful but as the liability relates to the completed tax year, it seems unlikely that a later year s allowance will be included. We can only hope for favourable responses on the above matters as this would certainly help to reduce the impact of the tax rule changes. We will report back when more news is available. One factor that might already help to reduce liability is the application of the Consumer Price Index (CPI), rather than the Retail Price Index (RPI) to the opening pension value and it means that those in receipt of pay above 93,750 will not necessarily exceed the annual allowance purely through double accrual. Age Discrimination We have received several update requests since providing information on the Government s acceptance that the payment of pension contributions between the ages of 18 to 20 for no benefit discriminates on grounds of age. The position is unchanged in that the Government s intent to alter Scheme Rules remains unchanged but revised rules will not be drafted until other amendments to the Schemes have been agreed. Given the present state of flux regarding public sector pensions, it is highly unlikely that the drafting of revised legislation will commence before late spring 2011, at the earliest. Retired members (with more than 30 years service) who paid contributions before age 20 will have these contributions repaid at the current rate but this may not happen for some time yet. For anyone still serving, there will be a two-year contributions holiday and CLG have issued guidance suggesting that fire and rescue authorities commence such holidays in advance of rule changes. However, authorities tend to be nervous about acting outside of legislation and we doubt that many will take action before rule changes take effect. 5