Public sector pension policy criticised by MPs

image captionLord Hutton recently suggested further big changes to public sector pension schemes

A committee of MPs has criticised the government's formulation of public sector pension policy.

The public accounts committee says a key feature of changes announced three years ago has yet to start.

Known as "cost-sharing and capping", it has been delayed with no firm implementation date.

The MPs say this undermines government claims that the cost of pensions for civil servants, NHS staff and teachers will be cut substantially.

'On hold'

The Treasury told the MPs that changes brought in during 2007-08 would limit the cost of these three big pension schemes over the next 50 years to 1% of the UK's GDP.

That would lead to a saving of £67bn over that time, which the committee said would be a significant achievement.

However, about 60% of that predicted saving was due to come from cost-sharing and capping.

The policy would involve putting a ceiling on any further increase in pension costs to employers, which would lead to a big increase in staff contributions, or a cut in their benefits.

Margaret Hodge, chair of the Committee of Public Accounts, said: "The Treasury expects the majority of savings to come from cost sharing and capping, a reform designed to ensure that employees bear a greater share of future costs."

"However, implementation has been deferred because of the Treasury's discount rate review, and remains on hold while the government consults on the recommendations put forward by the Hutton Commission," she added.

Changes achieved

Two of the three main changes agreed three years ago have been brought in.

These were raising the normal retirement age for new joiners from 60 to 65, and increasing employee contributions for teachers and NHS staff.

More money will be saved by the more recent decision in 2010 to change the index for inflation-proofing in the pension schemes from RPI to slower-growing CPI.

Further big changes, such as switching most of the public service pension schemes from a final-salary basis to a career-average one, and raising staff contributions, have recently been recommended by Lord Hutton's public service pension commission.


Teachers' trade unions seized on another aspect of the MPs' report.

The committee said that Treasury officials had failed to explain exactly how they had decided what level of public pension spending was affordable or unaffordable.

"Officials appeared to define affordability on the basis of public perception rather than judgement on the cost in relation to either GDP or total public spending," the MPs' report said.

Christine Blower, general secretary of the National Union of Teachers, said: "The committee is right to criticise the government for proposing further changes without even having considered what is affordable."

"This is a policy based on nothing short of false assumption and spin," she added.

Chris Keates, general secretary of the NASUWT, another teachers' union, said: "This damming report highlights the Treasury's failure to have even the most basic figures in place on which to base its proposals for worsening public service pensions."

Russell Hobby, general secretary of the NAHT, said the government had been disingenuous in claiming that pension costs were unaffordable.

"To move to make changes to the pension scheme for teachers when the case for change is unproven is reckless in the extreme," he said.

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