Recommendations & Conclusions
25 items
2
Conclusion
Sixth Report - Public Sector Pensions
It is becoming clear that public service pension policy is affecting the delivery of frontline services in some areas, such as education and health. In 2019–20, a substantial increase in employers’ pension contributions—which was not fully funded by HM Treasury—has directly impacted on employer budgets. As a result of concerns …
Government response. 2.1 The government agrees with the Committee’s recommendation. Recommendation implemented 2.2 Employer contribution rates for public service pension schemes are determined at valuations which are held every four years. Valuations are a complex process which take several years to complete …
HM Treasury
3
Conclusion
Sixth Report - Public Sector Pensions
HM Treasury has not done enough to ensure people understand the value of their pensions. This Committee previously recommended, in 2011, that HM Treasury should work with employers and pension schemes to ensure that clear and relevant information is provided to employees on the value of their pensions. But limited …
Government response. 3.1 The government agrees with the Committee’s recommendation. Target implementation date: March 2022 3.2 Participation in the main public service pension schemes are very high. For example, less than 1% of the active Civil Service population has currently opted out …
HM Treasury
4
Conclusion
Sixth Report - Public Sector Pensions
HM Treasury has done little to identify and manage the stark differences in average pensions between genders and other groups. HM Treasury does not collect and analyse data on how pension outcomes differ across groups of scheme members or across generations. The NAO report identified a 45% gap in the …
Government response. 4.1 The government disagrees with the Committee’s recommendation. 4.2 Differences in public service pensions between different groups are a function of past differences in earnings over members’ careers rather than differences in pension provision itself. 4.3 The government agrees on …
HM Treasury
5
Conclusion
Sixth Report - Public Sector Pensions
HM Treasury has had to revisit key elements of the reforms, and these issues may take decades to resolve fully. HM Treasury should have foreseen the age discrimination issue that gave rise to the 2018 McCloud judgment, and putting things right will take many decades to resolve. HM Treasury wants …
Government response. 5.1 The government agrees with the Committee’s recommendation. Target implementation date: February 2022 5.2 The government committed to legislate as soon as practicable to remedy the discrimination identified by the Court of Appeal in the McCloud judgment in its consultation …
HM Treasury
6
Conclusion
Sixth Report - Public Sector Pensions
HM Treasury has not yet performed an evaluation of its reforms and we are not convinced it is on track to meet its objectives. As a part of its 2011–2015 reforms, HM Treasury made a commitment that there would be no more reforms for 25 years. We are just six …
Government response. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: End 2021 6.2 HM Treasury will write to the Committee with an assessment of how it is meeting its objectives for public service pensions. 6.3 Given the long-term nature …
HM Treasury
1
Conclusion
Sixth Report - Public Sector Pensions
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury and the Government Actuary’s Department about public service pensions.1
Government response. Based on a report by the National Audit Office, the Committee took evidence on 22 April from HM Treasury and the Government Actuary’s Department. The Committee published its report on 11 June. This is the government’s response to the Committee’s …
HM Treasury
7
Conclusion
Sixth Report - Public Sector Pensions
As a part of the 2011–2015 reforms, HM Treasury offered ‘transitional protection’ to those closest to retirement. This meant that scheme members within 10 years of their normal retirement age would see no change to their pension age or their expected pension.12 In 2018, the Court of Appeal ruled that …
Government response. Introduction from the Committee Around 25% of pensioners and 16% of the working-age population are members of one of the four largest public service pension schemes (the armed forces, civil service, NHS and teachers’ pension schemes). In 2019–20 the four …
HM Treasury
8
Conclusion
Sixth Report - Public Sector Pensions
HM Treasury has since been developing a remedy for those affected.14 In February 2021, HM Treasury announced that it plans to give the 3 million members affected by the McCloud judgment a choice of which scheme they would like their service between April 2015 and March 2022 to count towards. …
Government response. The government committed to legislate as soon as practicable to remedy the discrimination identified by the Court of Appeal in the McCloud judgment in its consultation Public service pensions: Changes to the transitional arrangements to the 2015 schemes. Subsequently, the …
HM Treasury
9
Conclusion
Sixth Report - Public Sector Pensions
Separately, HM Treasury has some concerns about the measures it has in place to control rising costs. As a part of its 2011–2015 reforms, government put in place a ‘cost control mechanism’ designed to share costs fairly between employees and employers.18 The mechanism is built into the four-yearly pension valuation …
Government response. HM Treasury is setting out in amending Directions the detail of how the cost control element of the 2016 valuations will be completed. These will be published following engagement with stakeholders before schemes then finalise results. The government announced in …
HM Treasury
10
Conclusion
Sixth Report - Public Sector Pensions
While the cost control mechanism was only used for the first time in 2016, HM Treasury is concerned that it is not sufficiently protecting the taxpayer and members. The provisional results of the 2016 valuations show that costs had fallen across all schemes, and therefore members could expect an increase …
Government response. 5.4 HM Treasury is setting out in amending Directions the detail of how the cost control element of the 2016 valuations will be completed. These will be published following engagement with stakeholders before schemes then finalise results. The government announced …
HM Treasury
11
Conclusion
Sixth Report - Public Sector Pensions
In both of these cases, the government knew these issues had the potential to arise and could have avoided them. In the case of the McCloud judgement, government was advised that special transitional protection could potentially be in breach of age discrimination legislation.22 HM Treasury told the Committee that officials …
Government response. The government believes that the public service pension reforms introduced in 2015 meet the objectives for public service pensions set out in the 2011 white paper Public service pensions: Good pensions that last and is now focusing on completing implementation …
HM Treasury
12
Conclusion
Sixth Report - Public Sector Pensions
As a part of its 2011–2015 reforms, HM Treasury made a commitment that there would be no more reforms for 25 years. HM Treasury told us there are no intentions for further cross-government reform, but that it is something it continues to monitor.26 However, we are just six years into …
Government response. The government believes that the public service pension reforms introduced in 2015 meet the objectives for public service pensions set out in the 2011 white paper Public service pensions: Good pensions that last and is now focusing on completing implementation …
HM Treasury
13
Conclusion
Sixth Report - Public Sector Pensions
HM Treasury told us it has not yet performed an evaluation of its reforms. In its 2011 report on public service pensions, the Committee noted that increasing the amount that employees have to contribute to pension schemes could result in more people opting out of their pensions and having to …
Government response. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: End 2021 6.2 HM Treasury will write to the Committee with an assessment of how it is meeting its objectives for public service pensions. 6.3 Given the long-term nature …
HM Treasury
14
Conclusion
Sixth Report - Public Sector Pensions
HM Treasury said that its focus remains on implementing the 2011–2015 reforms in full and that its reforms will have an impact over the very long-term. HM Treasury acknowledged there will come a point where it will need to undertake much more detailed evaluation.30 26 Qq 61–63; C&AG’s Report, para …
Government response. The government believes that the public service pension reforms introduced in 2015 meet the objectives for public service pensions set out in the 2011 white paper Public service pensions: Good pensions that last and is now focusing on completing implementation …
HM Treasury
15
Conclusion
Sixth Report - Public Sector Pensions
Pensions play an important role in the overall remuneration package employers offer to recruit and retain staff. There is evidence that pensions affect how people chose to work which may impact frontline services. For example, the interaction between the NHS Pension Scheme rules and the tax system means a large …
Government response. Departments are responsible for assessing where the reformed public service schemes introduced in 2015 require further changes to meet specific workforce needs. When any changes are proposed to HM Treasury, they are assessed against legal and fiscal implications, including the …
HM Treasury
16
Conclusion
Sixth Report - Public Sector Pensions
Pensions are also a significant cost to public service employers. In 2019–20, employer contributions across the four main public service schemes rose in real terms by £6.4 billion, to £23.3 billion (around 24.3% of total payroll).34 This substantial increase has directly impacted on employer budgets, putting further pressure on frontline …
Government response. Employer contribution rates for public service pension schemes are determined at valuations which are held every four years. Valuations are a complex process which take several years to complete and are carried out by individual departments with scheme advisers from …
HM Treasury
17
Conclusion
Sixth Report - Public Sector Pensions
As a direct result of concerns about these increasing contributions, around 200 independent schools are set to withdraw from the Teachers’ Pension Scheme. HM Treasury told us that the Department for Education has worked very closely with the Teachers’ Pension Scheme to make sure that current teachers affected by this …
Government response. Employer contribution rates for public service pension schemes are determined at valuations which are held every four years. Valuations are a complex process which take several years to complete and are carried out by individual departments with scheme advisers from …
HM Treasury
18
Conclusion
Sixth Report - Public Sector Pensions
The employer contribution rate is next due to be implemented in 2024, where it may change again. Both the SCAPE discount rate—which is a key assumption used to help set the employer contribution rate and drove the 2019–20 increase in employers contributions—and its methodology will be reviewed prior to 2024.40 …
Government response. Employer contribution rates for public service pension schemes are determined at valuations which are held every four years. Valuations are a complex process which take several years to complete and are carried out by individual departments with scheme advisers from …
HM Treasury
19
Conclusion
Sixth Report - Public Sector Pensions
This Committee previously recommended, in 2011, that HM Treasury should work with employers and pension schemes to ensure that clear and relevant information is provided to employees on the value of their pensions, and that this information is regularly updated and its usefulness to staff assessed.41 Despite this, we have …
Government response. 3.1 The government agrees with the Committee’s recommendation. Target implementation date: March 2022 3.2 Participation in the main public service pension schemes are very high. For example, less than 1% of the active Civil Service population has currently opted out …
HM Treasury
20
Conclusion
Sixth Report - Public Sector Pensions
Furthermore, government’s response to the McCloud judgment has potential to exacerbate the problem. Members affected by the McCloud remedy will be asked to make a complex decision about their pensions, which may include balancing between the level of pension they retire with and when they wish to retire. HM Treasury …
Government response. For active and deferred members, the Bill introduces the ‘deferred choice underpin’ as set out in the government’s consultation response. Under this approach, members can make their choice over which set of benefits to have earned during the remedy period …
HM Treasury
21
Conclusion
Sixth Report - Public Sector Pensions
When asked about what information was available on employees that opt out of public service pension schemes, HM Treasury told us it did not collect this information.45 HM Treasury told us that individual pension schemes often provided assessments of opt-out rates to public pay review boards, but detailed breakdown were …
Government response. The government agrees with the Committee’s recommendation. Target implementation date: March 2022 Participation in the main public service pension schemes are very high. For example, less than 1% of the active Civil Service population has currently opted out of the …
HM Treasury
22
Conclusion
Sixth Report - Public Sector Pensions
Individual schemes hold information on participation rates for some groups, for example participation in the NHS Pension Scheme is lower among younger employees.48 However, HM Treasury told us that there are lots of imperfections in the quality of participation data, and that it does not as standard collect detailed opt-out …
Government response. The government agrees with the Committee’s recommendation. Target implementation date: March 2022 Participation in the main public service pension schemes are very high. For example, less than 1% of the active Civil Service population has currently opted out of the …
HM Treasury
23
Conclusion
Sixth Report - Public Sector Pensions
The National Audit Office found there were stark differences in the average pension received by scheme members, when analysed by gender. Their report identified that the average pensioner is paid £10,000 annually, but there is a 45% gap in the average pension being paid to male and female pensioners. The …
Government response. 4.2 Differences in public service pensions between different groups are a function of past differences in earnings over members’ careers rather than differences in pension provision itself. 4.3 The government agrees on the importance of collecting and analysing data of …
HM Treasury
24
Conclusion
Sixth Report - Public Sector Pensions
HM Treasury told us it does not collect and analyse data on how pension outcomes differ across groups of scheme members or across generations.57 GAD told us that insufficient data means government is unable to analyse similar gaps that are likely to exist in other groups, such as black and …
Government response. 4.2 Differences in public service pensions between different groups are a function of past differences in earnings over members’ careers rather than differences in pension provision itself. 4.3 The government agrees on the importance of collecting and analysing data of …
HM Treasury
25
Conclusion
Sixth Report - Public Sector Pensions
We are also concerned that HM Treasury does not specifically consider whether armed forces pension scheme arrangements are sufficient to support personnel when it becomes time for them to move into civilian life, which can be well before reaching “retirement age” (of 60 in the armed forces pension scheme). HM …
Government response. Departments are responsible for assessing where the reformed public service schemes introduced in 2015 require further changes to meet specific workforce needs. When any changes are proposed to HM Treasury, they are assessed against legal and fiscal implications, including the …
HM Treasury