Archived decisions

Hampshire Fire and Rescue Authority

Personnel Committee Item 5

1 December 2004

Proposals for Amendments to the Firefighters' Pension Scheme

Report of the Chief Officer

Contact: Jennifer McNeill Head of Human Resources - Tel : 023 8064 4000 ext 2348

1

Summary

1.1

The Government is committed to introducing new pensions arrangements for firefighters. This is to bring the scheme more in line with other public-sector pensions schemes; to reflect the relevant tax and regulatory framework for pensions, increase flexibility and make the scheme less costly. Two consultation papers have been issued by the Office of the Deputy Prime Minister (ODPM); the first details reforms to the existing regime, while the second outlines proposals for a scheme for new entrants, to take effect in April 2006. Overall, the intention is to introduce a pension scheme suited to the fire and rescue service of the future.

1.2

There are a number of key changes arising from these proposals, including amendments to the pension age and benefits relating to early retirement due to ill health. The proposed new pension provision would introduce partner pensions, increase death benefits and bring an end to compulsory retirement.

1.3

Information regarding the consultation documents has been issued to our Grey Book employees and is available on our intranet and the ODPM website. Comments are invited on any issues raised in the consultation document, but particularly on 16 identified areas where views are sought. The closing date for comments is 14 January 2005. Details of how to send comments to the relevant offices of the ODPM are specified and all fire service employees are encouraged to send their questions and concerns direct for consideration by ministers early next year.

1.4

This paper summarises some of the proposed changes and identifies potential issues and impacts on the Service. It is, however, too early to be clear on the likely resourcing issues until the outcome of the consultation process is known and final scheme produced.

2

Background

2.1

The `White Paper', `Our Fire and Rescue Service' set out the Government's commitment to introduce a new pension scheme compatible with a more diverse workforce, flexible working patterns and reflecting the new legal requirements, for example, on pensions taxation. The view is that the nature of the work has changed since the current scheme was first introduced in 1948 and there is a need for a new arrangement to reflect the modern fire and rescue service with its increased focus on prevention. All public sector pension schemes are facing change and the fire service is included in this. Not to do this would mean that taxpayers would continue to fund packages for the fire service that are more generous than those on offer in their own workplaces.

2.2

The job of a firefighter has changed substantially since 1948, with improved equipment and risk management. In addition, life expectancy of people generally has increased and this impacts on the cost of all pension schemes. The Government has decided that, subject to some changes, the Firefighters' Pension Scheme 1992 (FPS) should continue to operate for current members for a period of time. It is envisaged that current members of the scheme would be able either to transfer into the new scheme or to freeze their pension rights in the FPS and join the new scheme for future service only, with accrued rights being protected.

2.3

A number of changes have been proposed and these are now subject to the normal consultation arrangements for firefighters' pensions issues.

3

Key changes

3.1

Under the current pension arrangements, a firefighter with 25 or more years' service may retire at the age of 50 with no actuarial reduction to reflect this early age of retirement. A full pension may be paid to a person with 30 years' service. The proposed scheme, with effect from April 2006, will raise the minimum pension age to 55 years. However, those who retire before April 2013 aged 50 years or older with 25 years' service, will be exempt from this change.

3.2

Currently, under the FPS, the pension age for firefighters who leave the service early with a deferred pension, is 60, in line with the normal pension age for other public service schemes. The proposed deferred pension age is 65.

3.3

The rules for ill health retirement are likely to change. A firefighter who is permanently disabled from performing the duties of a firefighter is currently entitled to an ill-health pension which is enhanced by an amount dependent on length of service. The present arrangements act as a perverse incentive to retire at certain points of service, for example after 26 and a half years' service.

3.4

The current facilities for ill health retirement result in the loss of skilled and experienced employees simply because they are deemed to be unfit for the operational element of their job - i.e. being an operational firefighter. The proposal is for a two tiered system for ill health retirement - the first to provide an immediate pension with no enhancements, payable to those who are able to take alternative regular employment. For those permanently disabled from taking regular alternative employment, there is a proposed system of enhancements to compensate for the loss of earnings capacity.

3.5

Under Inland revenue rules, injury benefits would be removed into a separate scheme as part of the process of modernisation.

4

The Issues for Consultation

4.1

The 16 issues identified by the ODPM for consultation are listed below and where the Pensions Services of Hampshire County Council feel a response is appropriate, this has been included :-

Issue 1. The existing Firefighters' Pension Scheme should be closed to new members once the new scheme has been finalised and no later than 1 April 2006 and new entrants to the Fire and Rescue Service should join the new pension scheme from that date. (Paragraphs 1.2 and 4.1 - 2)

Comment: This should read `no later than 31 March 2006'

Issue 2. Membership should be limited to firefighters, whatever duty system they work (regular or retained). (paragraphs 2.1 - 2)

Comment: This is positive for retained firefighters

Issue 3. There should be no compulsory retirement age. (paragraphs 2.4 - 5)

Comment: Disagree - there should be a compulsory retirement age, particularly considering the nature of the work carried out by firefighters and the practical and budgetary difficjltuies which would result from extensive requirements to redeploy firefightrers into non frontline roles. If there is no compulsory retirement age, then this will lead to an increased number of ill health retirements. Suggest compulsory retirement age of 60 years or no ill health retirement after normal pension age.

Issue 4. The normal pension age: there are arguments for age 65, although we need to be satisfied that the roles which firefighters may be expected to carry out in the future will allow significant numbers of members to continue working to that age. The other possibility is age 60. (paragraphs 2.6 - 11). The deferred pension age should be age 65 (paragraph 2.12).

Comment: Suggest 60 years to be the normal pension age for retirement .

Issue 5. There should be single accrual. There is a range of options, the main ones being a pension based on 60ths with optional commutation or a pension based on 80ths with a fixed lump sum of 3 or 4 x pension. (Paragraphs 2.13 - 18)

Comment: Yes, single accrual to apply. Prefer 60ths with optional commutation as more flexible but this is slightly more expensive than 80ths which is more rigid.

Issue 6. For those who accrue maximum service (40 years) before normal pension age the excess service should accrue for pension purposes and for those who work beyond normal pension age the additional service should be allowed to accrue for pension purposes. (paragraphs 2.13 - 18)

Comment: This seems fair.

Issue 7. Pensionable pay should be defined by reference to core pay and possibly other permanent emoluments. (Paragraphs 2.19 - 22 )

Comment: Agree.

Issue 8. The scheme should incorporate measures to mitigate adverse effects on the pension benefits built up by a member who moves from operational to non-operational duties or who steps down from a more senior role. Should firefighters' pensions be based on career average earnings? (Paragraph 2.23)

Comment: This will include situations where the Disability Discrimination Act might apply and a certificate of material change would allow earlier higher pay to be used in the pension calculation and thereby assist in preventing an adverse impact on change to salary levels should this arise. The Career average earnings option is not recommended as this would need a much lower accrual rate of perhaps 1/148th to give equivalent benefit value to current scheme.

Issue 9. There should be an option for payment of pensions from age 55 at the discretion of the employer. (Paragraphs 2.24 - 28)

Comment: Agree, but need to be linked to a reduction in benefits if leave at age 55 years, so reduces impact of the shortfall of reduced years' on the Scheme. This should be at no additional cost to the employer.

Issue 10. Firefighters retired for ill-health reasons who can take alternative regular employment should have an immediate un-enhanced pension. Those permanently disabled from taking regular full-time employment should have enhanced pensions. Enhancements should be limited by reference to normal pension age, or 40 years' service, whichever is the lower. (paragraphs 2.29 - 32)

Comment: All pension schemes are bringing this in, so seems to be fair.

Issue 11. Survivor pensions should be extended to unmarried partners. (paragraphs 2.34-37)

Comment: Agree, but need to link to one person and only as nominated named by the employee. Reference to `partners' (plural) might infer a number of people may receive benefits. There is a cost issue here as this is new.

Issue 12. Maximum spouse/partner's pension should be 25% of the member's pensionable pay, payable for life; and the children's pension too should be a percentage. (paragraph 2.38)

Comment: This would be achieved by either 50% of the firefighters pension in a 1/180 scheme or by an accrual rate of 1/160 in a 60th scheme.

Issue 13. Death benefit should be 3 x pensionable pay. (paragraphs 2.39 - 41)

Comment: in line with proposals for the Local Government Pension Scheme and the Police Pension Scheme and the recently introduced principal Civil Service Pension Scheme.

Issue 14. Scheme members should pay a contribution of about one third of the costs. On the basis of a normal pension age of 65, costs will range from 19% to 24% of pay depending on the benefits paid, giving a contribution of 6.5% to 8%. (paragraphs 3.1 - 3)

Comment: Agree

Issue 15. Options for members of the Firefighters' Pension Scheme to transfer to the new scheme will be considered. Rights under the Firefighters' Pension Scheme will be fully protected. (paragraphs 4.3 - 4)

Comment: Agree

Issue 16. Should membership by retained firefighters be automatic or voluntary; or could it depend on whether the person was an existing member of the Service or a new entrant? Should membership be on the same basis as regular firefighters, whether whole or part-time. (paragraphs 4.5 - 7)

Comment: Suggest membership is automatic with the choice to opt out so this is consistent with wholetime firefighters. We assume the Bounty Payments for retained firefighters will no longer exist post 2007 once access to Firefighters Pension Scheme is agreed?

4.2

Comments are invited from all interested parties to the ODPM by 14 January 2005.

5

Resource Implications

5.1

Human Resources

The greater flexibility provided by the proposed revisions to the pension scheme appear to remove some of the current inequities between our wholetime and retained employees and overall, may provide for greater flexibility in employment and career patterns.

The proposal is that employees who are 50 years or older and have at least 25 years' service will be able to retire normally from the Service before April 2013. Those who fall into this category and choose not to retire will be subject to the new retirement and deferment ages. This cut off date may be a perverse incentive for people in the current scheme to leave earlier than they might otherwise have planned and we need to consider this in our establishment forecasting nearer the time. If employees who retire at this stage consider re-joining as a firefighter, then this will automatically be in the new pension scheme.

The consultation document refers to the need to have jobs available for a significant proportion of people who are no longer fit for operational duties. Whilst there would be benefits to the service in retaining the experience and skills of our firefighters should they be deemed to no longer be operationally fit for full firefighting duties, there are issues of reasonable adjustments we will need to consider to enable people to remain within the operational role as required by the Disability Discrimination Act. Also, we will need to ensure that we continue to provide equality of opportunity in employment if there is an expectation that non-operational posts will be filled by ex-firefighters to allow them to remain in the pension scheme. It is difficult to form any firm views about the potential impact on our employees or our establishment forecasting at this early stage, at least until the response from ministers is circulated after January 2005.

6

Our current position regarding compulsory retirement at 55 years for personnel below Assistant Divisional Officer (ADO) rank

6.1

There is currently a two tier compulsory retirement age for operational personnel depending on their rank at reaching the age of 55 years. Those who are below ADO rank may retire up to age 55 years, and those who are ADO or above may retire up to 60 years. Over the last year, we have received a number of requests by serving personnel, wholetime and retained for the Service to relax the current Grey Book restrictions on the earlier retirement age of 55 years. In recognising the fact that the current compulsory age is due to change or be deleted as part of the revisions to the pension scheme, we have reviewed our position regarding retirement.

We now consider requests from anyone wishing to have their employment extended and these requests are subject to medical and health safeguards, together with a business justification for the extension. These extensions are reviewed on a yearly basis and this facility will continue until such times as the new pension scheme is clarified and adopted accordingly.

This has been particularly beneficial to the Service as regards our retained employees, many of whom are keen to remain in our employ and continue to serve their communities.

7

European Convention on Human Rights and the Human Rights Act 1998

7.1

The proposals within this report are compatible with the provisions of the European Convention on Human Rights and the Human Rights Act 1998 and considered in the light of the Race Relations (Amendment) Act 2000.

Recommendations

1

That the Personnel Committee notes the content of the report and agrees that the proposed comments to the 16 pension proposals, listed in Section 4 of this report, may be submitted to the ODPM before the closing date of 14 January 2005.

2

That the Committee endorses the approach taken by the Service to consider requests made from serving personnel who wish to remain in our employ past the age of 55 years.

Section 100D - Local Government Act 1972 - Background Papers

The following documents disclose the facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of the report.

ODPM Consultation Document (Appendix 1)

Government Proposals for a New Firefighters' Pension Scheme

Note: The list excludes:

(1) Published works

(2) Documents that disclose exempt or confidential information as defined in the Act