Though the unions are preparing to strike at the end of this month, the government is hoping that a new set of concessions will pave the way for a negotiated agreement. Richard Hall and Matt Ross survey the battlefield.

If the battle to control government debt and foster economic growth has been the central narrative of the coalition’s first 18 months, then the fight to reform the pensions of workers in the public sector has been an intriguing and long-running sub-plot.

The scene was set in the May 2010 coalition agreement, when both parties agreed to “review the long-term affordability of public sector pensions”. A report by Labour’s former work and pensions secretary Lord Hutton recommended a new scheme for public servants, linking pensions to career average earnings rather than final salaries. This, combined with higher employee contributions; progressively increasing the pension age; and linking pension rises to the Consumer Price Index (CPI) rather than the higher inflation measure of the Retail Price Index (RPI), would rein in costs being driven up by longer life expectancy.

Ministers proceeded on this basis. Public sector unions said the plan would mean people working longer, paying more and getting less in return – and took industrial action in the summer. Since then, negotiations between government and unions have been overshadowed by the threat of a further strike at the end of this month.

However, on November 2 chief secretary to the Treasury Danny Alexander provided a twist in the story by watering down aspects of the government’s plans. Instead of universal switchover to career average schemes, those within 10 years of retirement would be allowed to stay in their final-salary arrangement. Ministers offered to maintain the accrual rate at 1/60th rather than reduce it to 1/65th, as previously proposed, and indicated that a long-term commitment would be made not to reopen any agreed reforms within the next 25 years.

Ministers described the offer as a serious attempt to head off industrial action later this month – but with strike ballots showing widespread anger at the reforms even within the most moderate unions, strikes on November 30 look almost unavoidable.

Dai Hudd, deputy general secretary of Prospect, welcomes the fact that the government has put some money on the table, but tells CSW: “The government’s original proposals reduced the value [of pensions benefits] by 47 per cent. If you add back what’s been made in this offer, the reduction is still 39 per cent.” Though it’s a move in the right direction, says Hudd, “it’s still a whopping great reduction in the value of the pensions. It also does nothing about the fact that there will be an imposed average 3.2 per cent increase in contributions.”

PCS general secretary Mark Serwotka is still less impressed by the government’s move. “The change from the original offer is marginal. The central areas of concern remain untouched. Civil servants would be expected to pay more for less in retirement, with most still told they must work longer before they get the pension they signed up for and was promised to them in their contracts,” he tells CSW.

The change to employment contracts angers many civil servants. One middle-ranking Home Office official says: “I signed a contract based on a salary which is less than I could be earning in the private sector on the understanding that I’ll be working for less time, and retiring on a good pension. That contract is being broken and there is nothing I can do about it.”

The official also criticises the government’s concession on the pensions of older civil servants: “People who are 10 years away from retirement have already built up a pension pot. These are exactly the people who are going to be costing [the taxpayer] huge amounts of money. Why should they be protected?”

Just over a quarter of civil servants are aged between 50 and 59, and Serwotka argues that even their pensions will not be left intact: “While they would remain in the scheme they’re currently in, they would still be forced to pay in up to three times as much and their pensions would be worse throughout their retirement because of the imposed switch in indexation from RPI to CPI,” he says. “Ministers are trying to mislead people into thinking they’re protecting these workers, when they are not.”

However, Cabinet Office minister Francis Maude argues strongly that the government’s offer is a good one for most civil servants. “Low and middle-earners will be able to retire on a scheme that’s at least as good as the current one,” he tells CSW. “We will be asking people who are a long way from retirement to pay more and to retire later, because people live longer now and those additional costs are falling to the general taxpayer. It will still be the case after these changes that the taxpayer contribution to these schemes will be roughly three times the amount that staff are contributing.”

As Maude’s comments show, in this debate the statistics are as fiercely contested as the general principles; and the Cabinet Office minister rejects Dai Hudd’s assessment that the new offer reduces pension benefits by 39 per cent. “It’s too early to do a definitive valuation,” he says – but he argues that many civil servants will find themselves better off under the government’s proposals. “We want these pensions to continue to be very good schemes, and among the best available,” he says. “Not many people in the workforce have access to defined benefit schemes that are index-linked and inflation-proof.”

Answering the charge that those closest to retirement will be least affected by the changes to contributions and thus don’t require special protection, Maude responds that “it’s a good general principle not to change the pensions of those people who are close to retirement. They’ve made their arrangements on the basis of the current scheme, and have the least ability to change their plans.”

Yet while the government’s concessions leave unions dissatisfied, others warn that they weaken the reforms. “The previous offer was the minimum necessary to put public sector pensions on a sustainable footing,” says Corin Taylor, senior economic adviser at the Institute of Directors. “We see the revised offer as a major climbdown.” Taylor recalls that the Blair government rowed back from major reform of public sector pensions in the face of strike threats: “The risk is, that’s exactly what the current government is doing.”

How far does the November 2 intervention move us towards a deal? The government has made no concessions on the shift from RPI to CPI – the subject of a union-led judicial review about which the PCS is making optimistic noises – and Serwotka is not mollified by the government’s new concessions. “We already agreed the ‘deal for a generation’ with the previous government,” he says. “All the independent analysis of that deal proves that our pensions are affordable now and well into the future, with the National Audit Office reporting that those changes will reduce costs to taxpayers by 14 per cent.”

However, according to Hudd the initiative shows that ministers “are beginning to clarify their thoughts on what needs to be done, and that’s to be welcomed”. He describes the move as “not insignificant” and, alongside other “like-minded unions”, wishes to explore “whether or not it gives us the avenue to come to an agreement”. He adds: “Whether we are towards the endgame I don’t know. I do know that we simply cannot carry on going around and around this position.”

Hudd and Serwotka both link pensions and pay, arguing that the pay freeze makes it impossible to increase contributions. But there is a potential way forward here: a well-placed trade union source suggests that lifting the pay freeze could unlock a deal. “We could probably, with a fair wind, get to an agreed position on long term pension reform by the end of this year,” the source says. “On the issue of the contribution increases, if the government was to simply say: ‘Look, we have no intention that the pay freeze should continue’, we could probably do a deal”.

At the Cabinet Office, Maude clearly has few hopes of winning over the PCS. “Mark Serwotka simply doesn’t come to the [negotiation] meetings,” he notes. Yet while he won’t be drawn on the possibility of lifting the pay freeze, he sounds more optimistic about the possibility of coming to an agreement with the other unions: “They’re taking the offer seriously,” he says.

In recent years, Christmas has become the time of year when families gather around the television to watch bubbling plot developments come to a head. And whilst strikes look set to go ahead at the end of this month, there is hope that by the festive season there will be dramatic – and perhaps decisive – moves towards a conclusion of the long-running saga of public sector pension reform.

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Written by Richard Hall and Matt Ross, CSW