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Promised savings from public sector pension reforms "confusing", expert says

Savings to the taxpayer promised by the Government as the result of the final stage of its reforms to public sector pensions are "confusing", an expert has said.14 Sep 2012

Commenting as the Government published its draft Public Service Pensions Bill public sector pensions specialist Christopher Berkeley of Pinsent Masons, the law firm behind Out-Law.com, cast doubt on the Government's forecast savings. The Treasury has said that the measures contained in the Bill, the final stage in its public sector pension reform programme, will save £65 billion over the next fifty years. The overall reform package will, it said, save an estimated £430bn.

"The fact that the change [in the measure of inflation] from RPI to CPI alone is said to amount to a saving of around £250bn - mind-boggling in itself - makes one wonder how much might have been saved if the Government had stuck to its guns on its original proposals," he said. "The elephant in the room is whether or not longevity improvements will continue apace; if they do then these savings - which are in any event no more than a finger in the wind because of the uncertainties around the component parts, can be expected to evaporate pretty quickly."

However, Berkeley acknowledged that – on paper at least - the Bill meant that the Government could continue to provide "a very valuable defined benefit pension offering" for public sector workers, which was "immeasurably better than the typical workplace pension now offered in the private sector".

The draft Bill contains a range of measures to implement agreements reached by the Government with workers, trade unions and their representatives following the publication of its enhanced offer to pension schemes in November last year. The new arrangements, which are set to come into force from 2015, will see pension entitlements calculated on a career average basis rather than being based on an employee's final salary. In addition, the age at which the majority of public sector employees can retire on full pension will increase in line with the state pension age.

The changes are the third and final phase in the Government's public sector pension reform programme, which will also see increased pensions contributions amounting to an average of 3.2% of scheme members' salaries phased in for existing scheme members over the next three years. The measure of inflation used to calculate annual increases in employer contribution rates was changed in April 2011 from the Retail Prices Index (RPI) measure to the generally lower Consumer Prices Index (CPI) measure.

The Government has pledged that workers who are ten years or fewer from the Normal Pension Age under their particular scheme on 1 April 2012 will not see any change in the date that they can retire, or any decrease in their pension entitlement. In addition, specific elements of the redesigned pension schemes will be protected from changes as far as possible for the next 25 years.

Among other measures included in the draft Bill is an employer cost cap, which the Government said would ensure that public sector pensions remained "affordable and sustainable". It will also close the "generous and outdated" Great Offices of State pensions for new office holders, meaning that future Prime Ministers, Chancellors, Foreign and Home Secretaries will receive pensions equivalent to those available for Government ministers.

Chief Secretary to the Treasury Danny Alexander said that the reforms represented "a good deal for taxpayers and a good deal for public service workers".

"The Bill is the final stage in delivering sustainable public service pensions," he said. "It will cut the cost to taxpayers by nearly half, while ensuring that public sector workers, rightly, continue to receive pensions amongst the very best available."

Changes to public sector pensions were the driver of a coordinated nationwide strike, led by the Trade Union Congress (TUC), which took place on 30 November last year. Trade unions have threatened further strike action as a result of the new Bill, with the leader of the Public and Commercial Services Union (PCS) saying in a statement that "coordinated industrial action is still necessary".

"From the very beginning of this the Government has refused to negotiate with us around the key issues of public servants being forced to pay more, simply to pay off the deficit, work up to eight years longer and get tens of thousands of pounds less in retirement," PCS general secretary Mark Serwotka said. "This is a naked attempt to impose unfair and unnecessary cuts to pension schemes that the Government's own adviser has said are affordable now and in the future, and we will continue to oppose it."