Recommendation 2

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.