Flexibility for public sector accrual rates

Accrual rates for Lord Hutton’s new public sector schemes could reach 1/80th, with a ‘cost-ceiling’ formula across all schemes set to dictate the rate used for specific funds.

The Treasury is currently considering a spectrum of accrual rates for the career average arrangement, ranging from 1/50th to 1/80th to chime with a “reference scheme” officials have put forward as a blueprint for schemes across the public sector.

A Government Actuary’s Department formula will underpin the public sector cost ceiling – a limit on taxpayer contributions to schemes – and will be fixed for all schemes.

However, schemes will be able to move away from the reference scheme if they can convince Treasury it can offset the costs elsewhere, raising the spectre of differing accrual rates.

A source said: “It’s not setting things in concrete but it is saying here’s the basic design, if you want to shift away from it you can, subject to Treasury agreement. If we came out with an accrual rate of X, you can negotiate an accrual rate of Y. But if you move to Y you have to shave another part of the package off to pay for it.”

Unions and employers have until the end of October to deliver “high level” proposals to the Treasury.

Unions are currently holding central and scheme specific talks and are set to reconvene with the Treasury on 22 September.

Unite assistant general secretary Gail Cartmail told PP: “What we had hoped for was an evidence-based negotiation but instead everyone feels the whole thing is in a straitjacket. The people being fielded by trade unions are extremely experienced negotiators and consistent among us is a frustration that we aren’t negotiating.”

Union and employer pension technical experts are currently wading through the GAD formula to evaluate what it will mean for members.

Unison head of pensions Glyn Jenkins added: “The trouble is the cost ceiling is set by the reference scheme and the methodology underlying that, so that will make it extremely difficult for people to construct a good scheme if you have a very low cost ceiling.”

Hutton recommended the new scheme begin in 2015.