Pension changes may cause opt-outs from public sector schemes

Changes to public sector pensions could undermine employee confidence and spark mass opt-outs, MPs have warned.

Dr Dearden: ‘The NHS pension scheme is fair to both the tax-paying public and NHS employees, and financially sustainable in the long term'
Dr Dearden: ‘The NHS pension scheme is fair to both the tax-paying public and NHS employees, and financially sustainable in the long term'

In a report on the impact of the 2007-8 changes to public sector pensions, the public accounts committee (PAC) said the Treasury should stop making changes to pensions.

The Treasury must create a period of stability so that ‘employee confidence in the value of their pensions is not undermined by fears that further changes will be made'.

‘It is important that the Treasury clearly defines the objectives of any future changes and develops consensus around them, in order to promote a period of stability for public service pensions,’ the PAC said.

The PAC argued that the Treasury should define what it thinks an affordable level of spending would be so it can assess the cost of public service pensions against a clear benchmark.

The chair of the committee of public accounts, the Rt Hon Margaret Hodge MP, said: ‘We are also concerned that the Treasury has not set out clearly what level of spending it considers sustainable in the long term. Instead, officials appeared to define affordability on the basis of public perception.’

The BMA has argued that NHS pensions have proved to be both fair and affordable.

BMA pensions committee chairman Dr Andrew Dearden said: ‘The NHS pension scheme is fair to both the tax-paying public and NHS employees, and financially sustainable in the long term.

'As the public accounts committee points out, the radical overhaul it underwent in 2008 is bringing substantial savings to taxpayers, with costs set to continue to decrease well into the future. Over the next five years, the NHS pension scheme will actually provide a surplus to the Treasury of over £10bn.’

The government has suggested that changes made in 2007-8 would stabilise costs at around 1% of GDP, thereby bringing substantial savings to the taxpayer. Mrs Hodges said that this would be a ‘significant achievement'.

She added:  ‘However, we are concerned that the Treasury has not tested the impact of the changes on some of the key assumptions underlying their cost projections.'

The PAC also expressed concerns over employees misunderstanding the worth of their pensions, because of a lack of clear information.

‘This hinders their ability to make rational decisions about important matters such as alternative employment options or whether to stay in, or opt out of, a pension scheme,' the committee said.

In addition to these concerns, the PAC said: ‘The Treasury has not tested whether reducing the value of pensions would affect the public sector’s ability to recruit and retain high quality staff.'

Dr Dearden, said: ‘The PAC is right to point out that the government needs to carefully assess the potential consequences of further changes to public sector pensions.

'Another sharp increase in contributions for NHS staff, or an increase in the retirement age, is likely to destabilise the largest public sector pension scheme, increasing the burden on the state, and creating problems with retention of senior staff.’

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