Recommendations & Conclusions
25 items
2
Recommendation
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 about these increasing contributions, around 200 independent schools are set to withdraw from the Teachers’ Pension Scheme, and we are concerned more may follow. This may put further pressure on the remaining schools, who may not be able to withdraw from the scheme despite others in the sector viewing it as increasingly unaffordable. At least one higher education institution has had to make redundancies in response to the 2019–20 increase in costs. The employer contribution rate is due to be implemented in 2024, where it may change again. Both the SCAPE rate—which is used to help set the employer contribution rate and drove the 2019–20 increase in employer contributions—and its methodology will be reviewed prior to 2024. There is also evidence that pensions can affect staff choices about their work, which impacts frontline services. For example, the interaction between the NHS Pension Scheme rules and the tax system means a large number of doctors have reduced their working hours, opted out of the scheme, or retired early. Recommendation: HM Treasury should regularly set out the likely impact on employers’ budgets of employer contribution rate changes in advance of their implementation. By giving employers plenty of notice and offering wider support, it can help minimising the impact on frontline services. HM Treasury should also consult widely on the SCAPE discount rate and its methodology, well in advance of any changes.
Show less
Government response AI summary
The government agreed with the recommendation, stating it already provides advance notice and support, and confirmed it is consulting on the SCAPE discount rate methodology with a new rate to be set for April 2024, proposing to align future reviews with the valuation cycle.
Read full response →
HM Treasury
3
Recommendation
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 progress has been made and more needs to be done to improve employees’ 6 Public Sector Pensions understanding. The problem has been exacerbated with further complexities being introduced as a result of government’s response to the McCloud judgment. HM Treasury provided us with data that implies that over 238,000 employees have opted out of their pensions, but it does not have a clear understanding of why they do so and whether some groups are more likely to opt out – it is particularly concerning if younger and lower paid employees are more likely to opt out. There are understandable reasons why people may choose to opt out of pension schemes for example, owing to short-term spending priorities, but inadequate pensions are likely to cause issues in the future and push costs into other policy areas, such as if people are more likely to be reliant on the benefits system. Recommendation: HM Treasury should lead from the centre, and seek to understand members’ views regarding their pensions, including the reasons why people may opt out of a scheme and whether this has a long-term impact on other parts of public services and expenditure. It should undertake a review into the take- up and retention of public pensions, particularly amongst young professionals, to help understand the issues employers face when trying to demonstrate the value of pensions. Such a review should identify areas where communication is working well and recommend best practice for employers.
Show less
Government response AI summary
The government accepted the recommendation, stating it will commission departments to analyse latest participation data, work to standardise data collection, and request updates on measures to improve participation to inform efforts to promote pension value, with a target date of March 2022.
Read full response →
HM Treasury
4
Recommendation
Sixth Report - Public Sector Pensions
Rejected
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 …
Read more
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 average pension being paid to male and female pensioners. Similar gaps most likely exist in other groups, such as black and minority ethnic scheme members, but the Government Actuary’s Department tells us that there is insufficient data which means it is unable to look at this. The different pensions outcomes between male and female pensioners exist because of past differences in pay, and HM Treasury seemed resigned to the pension gap enduring for many decades after the pay gap is closed. However, we are concerned that this will lead to inequalities persisting and could lead to legal challenges in the future. 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. Recommendation: HM Treasury should be proactive in collecting and analysing data to identify where significant gaps in average pensions exist between different groups. This analysis should inform a wider study on the adequacy of public service pensions, and to understand the impact of differences in pay and working patterns.
Show less
Government response AI summary
The government explicitly rejected the recommendation, arguing that pension differences are due to past earnings, not pension provision itself. While supporting the collection of data on drivers like the gender pay gap, it deemed collecting protected characteristics data for pension gaps irrelevant for scheme valuations …
Read full response →
HM Treasury
5
Recommendation
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 members to pay to put this right—at an estimated cost of £17 billion—despite this being its own mistake. Separately, HM Treasury is concerned that the cost control mechanism—designed to share costs of pensions fairly between employees and employers—is not sufficiently protecting the taxpayer and members. The Government Actuary’s Department says Public Sector Pensions 7 that the cost control mechanism is likely to be triggered very frequently, rather than only as a result of ‘extraordinary, unpredictable events’ as HM Treasury intended. This undermines the usefulness and stability of the mechanism and will impact employees and employers alike. HM Treasury was advised at the time of the reforms of both the age discrimination problem and that the cost control mechanism could easily be triggered. Recommendation: HM Treasury must prioritise work to quickly resolve the challenges presented by the McCloud judgment and cost control mechanism, in order to give certainty to scheme members and employers, and rebuild the trust lost through these issues. The Department should write to us with an update in six months’ time.
Show less
Government response AI summary
The government accepted the recommendation, outlining current legislative actions for the McCloud judgment via a new Bill and detailing steps to address the cost control mechanism, including waiving 2016 valuation ceiling breaches and consulting on future changes. It also committed to providing an update in …
Read full response →
HM Treasury
6
Recommendation
Sixth Report - Public Sector Pensions
Accepted in Part
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 …
Read more
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 years into that period and already there are substantial issues that need to be resolved. Both the McCloud judgment and HM Treasury’s concerns around the cost control mechanism have highlighted weaknesses in the reforms. COVID-19 and Brexit are likely to impact GDP in the short term, and it is too soon to tell if these events will have a long-term impact on public service pension affordability. HM Treasury has not yet performed an evaluation of its reforms as it is still in the process of implementing them. We are concerned that HM Treasury has still not prioritised an evaluation of its reforms, particularly given the importance of pensions to individual scheme members, their impact on frontline services, and their significant cost to the taxpayer. Recommendation: HM Treasury should perform an interim evaluation of its 2011–2015 reforms to ensure it is on track to meet each of its objectives, taking account of whether pensions are working for employers, employees and other taxpayers. It should write to the Committee with an update of this evaluation by the end of the year. 8 Public Sector Pensions 1 Public service pension reform
Show less
Government response AI summary
The government accepted the recommendation to provide an interim evaluation by the end of 2021, committing to write to the Committee with an assessment of its objectives. However, it noted this assessment would be necessarily limited as the 2011-2015 reforms are still in the process …
Read full response →
HM Treasury
1
Conclusion
Sixth Report - Public Sector Pensions
Acknowledged
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 AI summary
The government response reiterated the committee's opening statement about taking evidence and confirmed the report publication and the nature of the current document.
Read full response →
HM Treasury
7
Conclusion
Sixth Report - Public Sector Pensions
Acknowledged
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 …
Read more
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 these protections were discriminatory on the basis of age (the ‘McCloud judgment’).13
Show less
Government response AI summary
The government response reiterated the factual background of the public service pension reforms, including the McCloud judgment and its finding that transitional protections were discriminatory.
Read full response →
HM Treasury
8
Conclusion
Sixth Report - Public Sector Pensions
Accepted
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. …
Read more
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. The affected members will make this choice at the time their pension becomes payable, which means putting things right will take decades to resolve fully.15 HM Treasury estimates the cost of the remedy to be around £17 billion (excluding the cost of the additional administration). HM Treasury told us that it is ultimately members who will pay these costs, and this process will be managed through the cost control mechanism (see below).16 HM Treasury said it was now working 8 Qq 2, 3; C&AG’s Report, para 4, 5 9 Qq 2, 3 10 Qq 19–22 11 HM Treasury (Catherine Little) letter to the Committee, 12 May 2021 12 Qq 64–67; C&AG’s Report, para 3.2 13 C&AG’s Report, para 16 14 Qq 64, 67–72 15 Qq 67, 83 16 Qq 71, 72 10 Public Sector Pensions very closely with schemes to understand what the administration of the McCloud remedy is likely to cost, and it will consider how best to support schemes in the next spending review.17
Show less
Government response AI summary
The government affirmed its commitment to legislate to remedy the McCloud judgment discrimination and noted that the Public Service Pensions and Judicial Offices Bill was introduced in July 2021, reiterating the ongoing actions described by the committee.
Read full response →
HM Treasury
9
Conclusion
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 process, and its purpose is to control costs for taxpayer, to maintain value of pensions for scheme members’, and to achieve stability. If certain costs rise, members may see an increase in their contribution rate or a fall in the rate at which their benefits build up. Similarly, if certain costs fall, members may see a reduction in the amount they contribute, or an increase in their future benefits.19
Show less
Government response AI summary
The government detailed actions being taken to address issues with the cost control mechanism, including publishing amending Directions for 2016 valuations, waiving ceiling breaches, delivering floor breaches, and initiating discussions with Scheme Advisory Boards to rectify these.
Read full response →
HM Treasury
10
Recommendation
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 in their benefits or a reduction in the amount they contribute.20 However, HM Treasury paused the implementation of those changes while it formed its response to the McCloud judgment. HM Treasury has asked the Government Actuary’s Department (GAD) to review the mechanism to ensure it meets government’s objectives. When asked for current reflections from the review, GAD told us that the mechanism is likely to be triggered “very frequently”, rather than only as a result of ‘extraordinary, unpredictable events’ as HM Treasury intended. In his view, this undermines the stability of the mechanism and appears not to be keeping taxpayer costs under control.21
Show less
Government response AI summary
The government is addressing the cost control mechanism flaws by waiving ceiling breaches from 2016 valuations, delivering floor breaches, and has launched a consultation on changes to be implemented before the 2020 valuations.
Read full response →
HM Treasury
11
Conclusion
Sixth Report - Public Sector Pensions
Not Addressed
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 …
Read more
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 produced legal advice on a range of options for transitional arrangements, including discussion of potential risks of challenge under the Equality Act.23 In 2012, GAD provided HM Treasury with analysis that suggested the cost control mechanism could easily be triggered even in normal circumstances.24 It is clear from evidence submitted to us that these issues, and government’s response to them, has undermined the trust between HM Treasury, employers and other stakeholders. In particular, many have commented on the pause to the cost control mechanism and government’s decision that members should shoulder the cost of the McCloud remedy.25 17 Qq 67 18 Qq 55, 75; C&AG’s Report, para 17 19 Qq 55, 75; C&AG’s Report para 3.10 20 Q 75; C&AG’s Report, para 17 21 Qq 75–76 22 Qq 64–66; C&AG’s Report, para 3.2 23 HM Treasury (Catherine Little) letter to the Committee, 12 May 2021 24 Qq 75–77; C&AG’s Report, para 3.13 25 Unison submission page 3; Prospect submission page 4; HCSA submission page 3; BMA submission page 2; UCEA submission page 3 Public Sector Pensions 11 Evaluation of reforms
Show less
Government response AI summary
The government's response states its belief that the 2015 public service pension reforms meet objectives and that it is focusing on completing their implementation, without addressing the committee's finding that trust between stakeholders has been undermined.
Read full response →
HM Treasury
12
Conclusion
Sixth Report - Public Sector Pensions
Not Addressed
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 …
Read more
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 the post-reforms period and already there are substantial issues that need to be resolved. Both the McCloud judgment and HM Treasury’s concerns around the cost control mechanism have highlighted weaknesses in the sustainability of the reforms over the long term. COVID-19 and Brexit are likely to impact GDP in the short term, and it is too soon to tell if these events will have a long-term impact on public service pensions affordability.27
Show less
Government response AI summary
The government reiterated its belief that 2015 reforms meet objectives and is focused on completing implementation, but did not address the committee's observation about substantial issues arising just six years into a supposed 25-year commitment, or concerns about long-term sustainability.
Read full response →
HM Treasury
13
Recommendation
Sixth Report - Public Sector Pensions
Accepted in Part
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 …
Read more
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 rely on means-tested benefits, leading to extra costs to the public purse, and that important implications of this kind needed to be evaluated and understood. We asked whether the government has undertaken any such evaluation since the 2011–2015 reforms. HM Treasury told us that it had not done any post-implementation evaluation of those reforms, including evaluation of the impact on individuals and whether they are more or less likely to need to access benefits.28 We also asked whether HM Treasury had undertaken any evaluation linking pensions and trends in economic outcomes across different generations. HM Treasury told us it would consider this as part of any evaluation undertaken in future.29
Show less
Government response AI summary
The government agrees to conduct an assessment of how it is meeting its public service pension objectives by the end of 2021, but notes this assessment will be limited until the 2011-2015 reforms are fully implemented.
Read full response →
HM Treasury
14
Conclusion
Sixth Report - Public Sector Pensions
Not Addressed
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 …
Read more
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 5 27 Qq 15, 89; C&AG’s Report, para 15 28 Committee of Public Accounts, The impact of the 2007–08 changes to public sector pensions, HC 833, Thirty- eighth Report of Session 2010–12, May 2011 29 Q 74 30 Qq 37–38, 57, 74 12 Public Sector Pensions 2 Impact on employers and employees Impact on employers and frontline services
Show less
Government response AI summary
The government reiterated its belief that 2015 reforms meet objectives and is focused on completing implementation, but did not address the committee's note that HM Treasury acknowledged a future need for detailed evaluation.
Read full response →
HM Treasury
15
Conclusion
Sixth Report - Public Sector Pensions
Deferred
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 …
Read more
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 number of doctors have reduced their working hours, opted out of the scheme, or retired early.31 A recent survey of 8,000 members by the British Medical Association (BMA)—a trade union for doctors in the United Kingdom—showed that 72% of respondents may choose to retire earlier and 61% would reduce their working hours because of tax rules.32 Previous BMA surveys have shown that more than half of surgeons in Wales were advised by an accountant or financial adviser to work fewer hours in the NHS. HM Treasury has made some changes to the tax system in order to support senior clinicians, but ultimately doctors need to make an informed choice about their working patterns.33
Show less
Government response AI summary
The government stated that individual departments are responsible for assessing where public service schemes need changes to meet workforce needs, with HM Treasury assessing proposals, thereby redirecting responsibility for the specific concerns about doctors' working patterns.
Read full response →
HM Treasury
16
Conclusion
Sixth Report - Public Sector Pensions
Not Addressed
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 …
Read more
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 services.35 HM Treasury told us whenever there are unforeseen costs resulting from pension changes, particularly resulting from changes in the discount rate (a key assumption use to estimate the value of future benefits in today’s terms), it has provided additional funding to employers.36 For example, it recognised the potential impact of the 2019–20 increases to employer contributions and sought to mitigate this by providing £4.7 billion of additional funding at Budget 2019. However, this still means £1.7 billion of the increase was funded from employer budgets. HM Treasury told us there are always budget pressures that departments must manage in the normal course of their work.37
Show less
Government response AI summary
The government described the quadrennial valuation process for determining employer contribution rates, with the current valuation underway, but did not address the committee's observation about the specific £1.7 billion increase funded by employer budgets and its impact on frontline services.
Read full response →
HM Treasury
17
Conclusion
Sixth Report - Public Sector Pensions
Not Addressed
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 …
Read more
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 can stay within their existing pension scheme.38 However, the withdrawal of these schools may put further pressure on those schools that remain. For example, the Universities and Colleges Employers Association—the employers’ association for universities and colleges of higher education in the United Kingdom—wrote to us that at least one higher education institution has had to make redundancies in response to the 2019–20 increase in employers pension costs.39 31 Qq 80–82; British Medical Association, written evidence submitted to the Committee, April 2021 32 British Medical Association, written evidence submitted to the Committee, April 2021 33 Qq 80–82 34 C&AG’s Report, paras 2.14, 2.15 35 Qq 9–11, 79–80 36 Qq 9–10; C&AG’s Report para 2.16 37 Q 10 38 Qq 12–14 39 Universities and Colleges Employers Association, written evidence to the Committee, April 2021 Public Sector Pensions 13
Show less
Government response AI summary
The government explained that employer contribution rates are determined by four-yearly valuations, with the March 2020 valuations currently underway. It did not address the committee's specific concern about independent schools withdrawing from the Teachers' Pension Scheme or the pressure on remaining schools.
Read full response →
HM Treasury
18
Conclusion
Sixth Report - Public Sector Pensions
Not Addressed
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 …
Read more
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 Impact on employees
Show less
Government response AI summary
The government described the general quadrennial valuation process for employer contribution rates, with current valuations underway, but did not specifically confirm or elaborate on the stated review of the SCAPE discount rate and its methodology prior to 2024.
Read full response →
HM Treasury
19
Recommendation
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 seen little evidence of progress in ensuring that people understand the value of their pensions: HM Treasury told us it recognises that more needs to be done.42 HM Treasury agreed that part of the problem lies in education, and making sure that people understand how pensions work generally. Recent initiatives may help. For example, the Ministry of Defence has considered introducing more specific information on pay slips about the employee and employer contributions to better communicate their value to the scheme members.43
Show less
Government response AI summary
The government accepts the recommendation, agreeing to commission departments for participation data analysis, standardise data collection, and request updates on measures to promote the value of public service pensions to employees by March 2022.
Read full response →
HM Treasury
20
Conclusion
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 told us that from 2024 it plans to require all schemes to include additional information as part of their annual benefit statement. This will show the equivalent information for the legacy schemes as well as the reformed schemes so that, throughout the remaining period of an individual’s career, they can see how the two schemes change on an annual basis.44
Show less
Government response AI summary
The government outlined the 'deferred choice underpin' introduced in the Bill, allowing members to make choices about their benefits at retirement to simplify the complex decision-making related to the McCloud judgment.
Read full response →
HM Treasury
21
Recommendation
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 not always available.46 For example, the Teachers’ Pension Schemes only provides an estimate of overall participation. HM Treasury provided us with some data on overall opt-out rates: • NHS Pension Scheme – 10% of employees opted out of their pension, the equivalent of around 180,000 employees. • Teachers’ Pension Scheme – 7% to 8% of employees opted out of their pension, the equivalent of around 53,000 to 61,000 employees. • Civil Service Pension Scheme – less than 1% of employees opted out of their pension, the equivalent of around 5,000 employees.47 40 Qq 85–88 41 HC Committee of Public Accounts, The impact of the 2007–08 changes to public service pensions, Thirty-eighth Report of Session 2010–2012, HC 833, May 2011. 42 Qq 3, 16, 20, 25, 32 43 Q 47 44 Q 83 45 Q 30 46 Qq 42–46 47 Q 43 14 Public Sector Pensions
Show less
Government response AI summary
The government accepted the recommendation, stating it will commission departments for analysis of participation data, work to standardise data collection including by member characteristics, and request updates on measures to improve participation, aiming for implementation by March 2022.
Read full response →
HM Treasury
22
Recommendation
Sixth Report - Public Sector Pensions
Accepted
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 …
Read more
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 rates..49 As a result, HM Treasury could not give us a clear answer as to whether overall younger employees and those on lower pay are more likely to opt out of their pensions than other groups, or whether participation rates are increasing or decreasing over time.50 HM Treasury told us that while anecdotally it was aware of this issue, the data was limited – it was not clear on why people choose to opt out of their pensions or which groups are more likely to.51 HM Treasury also told us it does not collect any data on what happens to people once they opt out of their pension scheme.52 There are understandable reasons why people may choose to opt out of pension schemes (for example, short-term spending priorities) but inadequate pensions are likely to cause issues in the future and push costs into other policy areas, for example if people are more likely to be reliant on the benefits system.53 Inequalities and differences between groups
Show less
Government response AI summary
The government accepts the recommendation, committing to commission departments for detailed participation data analysis, standardise data collection by member characteristics, and gather updates on measures to improve participation by March 2022.
Read full response →
HM Treasury
23
Conclusion
Sixth Report - Public Sector Pensions
Acknowledged
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 …
Read more
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 largest gap the NAO identified was in the NHS Pension Scheme, at 63%.54 We challenged HM Treasury on whether it was right and fair for there to be such a gap. HM Treasury told us this gap in average pensions is determined by differences in the pay history of these two groups and what we see in the pension data reflects historical inequalities in pay over many decades. HM Treasury said that its response is to try and close the pay gap and it is seeing evidence that it is closing. However, HM Treasury commented that closing the pay gap alone will mean the gap in average pensions will likely persist for many decades, although it did not have a target for closing the gap in average pensions, nor could it commit to a timescale.55 However, the National Audit Office also identified other factors that affect the gap in average pensions, such as differences in working patterns between gender (for example, female scheme members are more likely to work part-time).56
Show less
Government response AI summary
The government acknowledges the gender pension gap, attributing it to historical pay differences and existing pay gap reporting, and stating it agrees on the importance of collecting and analysing data on the drivers of these differences.
Read full response →
HM Treasury
24
Conclusion
Sixth Report - Public Sector Pensions
Acknowledged
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 …
Read more
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 minority ethnic members. However, GAD said it would expect that similar gaps exist in the average pensions of black and minority ethnic members compared to white scheme members, because they are similarly affected by differences in historic earnings.58 HM Treasury told us that schemes do not typically hold 48 HM Treasury (Catherine Little) letter to the Committee, 12 May 2021 49 Qq 30–31 50 Qq 30–32, HM Treasury (Catherine Little) letter to the Committee, 12 May 2021 51 Qq 20–21, 30–32, 57–60, 74 52 Q 35 53 Qq 21, 36–41, 57, 74 54 C&AG’s Report, para 11 55 Qq 5–6, 26–29 56 C&AG’s Report, para 11 and Figure 3 57 Qq 57–60 58 Qq 7, 30, 58–60 Public Sector Pensions 15 data on members’ protected characteristics (other than gender because this is relevant to longevity assumptions), because of data protection regulations.59 However, HM Treasury recognised the possibility that there could be other legal challenges in the future.60
Show less
Government response AI summary
The government acknowledges the importance of collecting and analysing data on the drivers of pension differences, but highlights practical challenges and data protection regulations regarding collecting data on protected characteristics beyond age and gender.
Read full response →
HM Treasury
25
Conclusion
Sixth Report - Public Sector Pensions
Deferred
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 …
Read more
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 Treasury recognises that the physical requirements of the role for members of the armed forces differ from those for members of other public service pension schemes.61 HM Treasury said it considers the Armed Forces Pension Scheme to be very generous, with pensions at retirement fairly reflecting the unique sacrifice they have provided their country throughout their career. HM Treasury told us that the pensions offered are considered as a part of overall remuneration by the Armed Forces Pay Review Board.62 59 HM Treasury (Catherine Little) letter to the Committee, 12 May 2021 60 Q 26 61 Q 48 62 Qq 47–51; HM Treasury (Catherine Little) letter to the Committee, 12 May 2021 16 Public Sector Pensions
Show less
Government response AI summary
The government stated that individual departments are responsible for assessing scheme changes to meet specific workforce needs, with HM Treasury assessing proposals for legal and fiscal implications, thereby redirecting primary responsibility.
Read full response →
HM Treasury