Recommendations & Conclusions
6 items
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 …
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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
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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.
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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 …
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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
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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.
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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 …
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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
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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.
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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 …
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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
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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.
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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 …
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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
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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.
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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 …
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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
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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.
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HM Treasury