Northern Ireland Assembly latest to join public sector pensions reform push

The change was announced by the Northern Ireland Independent Financial Review Panel last week, introducing a raft of reforms for the remuneration of members of the legislative assembly.

Over recent years, widespread changes to the benefit structure of public sector arrangements have targeted long-term sustainability; in 2014 the Local Government Pension Scheme moved to a 1/49th accrual rate on career average revalued earnings, previously 1/60th on a final salary basis, while in 2015 workers in the NHS moved to 1/54th on a Care basis.

The panel expects that these decisions will amount to savings of between £1.5m and £2m in the Assembly’s budget over the next five years

Patrick McCartan, Independent Financial Review Panel

The changes to Northern Ireland Assembly pensions will shift members’ benefits to a 1/50th accrual rate on a Care basis from May 5 this year, a radical move from the final salary 1/40th accrual previously in place. Protections will be implemented to allow members aged over 55 on April 1 2015 to retain their 1/40th accrual.

Combined with changes to salary increases and expenses claims, Patrick McCartan, chair of the IFR panel, said the measures should support each MLA and their work for their next five-year term in office.

“The panel expects that these decisions will amount to savings of between £1.5m and £2m in the assembly’s budget over the next five years,” said McCartan.

‘Generous accrual rates’

David Davison, director at consultancy Spence & Partners, said the change to Northern Ireland MLAs’ pensions could make a difference over the longer term as younger members are elected to the assembly.

“If they’re moving from a 40th of final salary to a 50th Care that significantly reduces the risk,” he said.

This differs to elsewhere in the public sector, Davison said, where moves to a Care basis are unlikely to generate huge savings in the short to medium term.

LGPS reform began in 2008 under a very different set of market conditions, he said, and the move to a more generous accrual rate in the scheme, alongside 10-year protections already in place, are unlikely to result in significant short-term cost savings.

John Hanratty, partner at law firm Nabarro, said reform of UK politicians’ pensions, similar to the Northern Ireland Assembly, is currently in train.

“In the immediate term, what we’ve found from the reform of the central government schemes and the LGPS is that it doesn’t actually save any money because the accrual rates are quite generous,” he said.

“If you’ve got a 1/60th final salary and a 1/50th Care scheme, in the immediate term that’s not going to make much difference.”

Greater divergence between final and career average salaries could bring savings over the long-term, Hanratty added.

“In an age of austerity though, is that what you really need? Do you need to be saving over a 15-20 year period when you’ve just lost £4bn off your welfare cuts?” he said.

“When the Hutton report came through and talks started about the reform of pensions, everyone was relatively relaxed; we had gone through the credit crunch but no one was expecting the position we’re in now, which is long-term low interest rates and austerity.”