Early pension reforms are already saving money, says NAO

7 Dec 10
Changes to public sector pension schemes will provide significant savings and stabilise pension costs, auditors have concluded

By Vivienne Russell

8 December 2010

Changes to public sector pension schemes will provide significant savings and stabilise pension costs, auditors have concluded.

A report from the National Audit Office, published today, examines the impact of the 2007/08 reforms to the pay-as-you-go schemes for civil servants, teachers and NHS staff. These changes raised the level of employee contributions and the pension age for new staff from 60 to 65. These were the first financially significant changes to public sector pension schemes since the 1970s.

The NAO estimates that, as a result, costs to taxpayers in 2059/60 will be reduced by 14%. Aggregate savings over the years to 2059/60 are equivalent to £67bn in 2008/09 prices.

But auditors were concerned that the value for money of the changes cannot be demonstrated because the Treasury and employers failed to agree what role pension benefits play in the recruitment and retention of staff in the long term.

NAO head Amyas Morse said: ‘The savings are being provided by public service employees, in the form of increased contributions or reduced further pensions. We have not seen a strategic assessment of the long-term impact of these changes on the motivation and retention of staff, so we cannot say that value for money has been demonstrated.’

Unions said the report demolished the government’s case for further public sector pension cuts. Trades Union Congress general secretary Brendan Barber said: ‘The NAO analysis does not even take into account the new government’s decision to link future pension increases to the lower CPI measure of inflation rather than the traditional RPI indicator.

 ‘Independent research shows that this move will slash 15% from the value of pensions. Yet the NAO research shows that pension costs are under control without the change to the CPI link, and asks the government hard questions about whether pensions are doing enough to recruit and retain staff.’

Mary Bousted, general secretary of the Association of Teachers and Lecturers, said: ‘We are deeply concerned that the coalition government seems to have conveniently forgottenthese reforms.’ She added that Lord Hutton should take account of the changes as he draws up his final report on public sector pension reforms.

The civil service Public and Commercial Services union said the NAO report confirmed that public sector pension schemes were affordable and sustainable.

General secretary Mark Serwotka said: ‘This report provides further proof that when ministers talk about “unreformed” and “unaffordable” pensions, they either do not understand their government’s own schemes or they're being economical with the truth.

‘We have shown a willingness in the recent past to negotiate fair changes, but we will not accept a fresh ideological assault on our members’ pensions under the guise of necessity, when the evidence shows no such necessity exists.’

Interim findings from Lord Hutton’s review of public sector pensions were published in October. The final report will be published early next year.

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