Source · Select Committees · Public Accounts Committee
Recommendation 2
2
It is becoming clear that public service pension policy is affecting the delivery of frontline...
Conclusion
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.
Government Response
Acknowledged
HM Government
Acknowledged
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 and are carried out by individual departments with scheme advisers from the Government Actuary’s Department (GAD), in accordance with Treasury directions. Valuations as at March 2020 are currently underway. 2.3 Throughout the valuation process, HM Treasury, schemes and GAD work together through cross-Government channels to discuss the valuation timetable and any necessary changes to valuation assumptions in a timely manner, and to understand the potential impact of changes to determinants such as the discount rate on employer contribution rates. 2.4 Valuation outcomes depend on several factors and vary by scheme, meaning that any estimate of impacts will remain uncertain until valuations are formally completed at scheme level. This process is typically completed well in advance of new contribution rates being implemented. 2.5 Where factors in the valuation process have changed shortly before valuation outcomes are implemented (such as the change to the Superannuation Contributions Adjusted for Past Experience (SCAPE) discount rate announced in 2018), HM Treasury has provided additional funding to departments to ensure that unforeseen costs do not jeopardise the delivery of front-line services. 2.6 The government is consulting on the methodology used to set the SCAPE discount rate. Following this, the government will carry out a separate exercise to set a new SCAPE discount rate, which will impact new employer contribution rates implemented in April 2024. 2.7 To mitigate the risk of changes to the SCAPE discount rate at a late stage in the valuation cycle, the consultation proposes to align future reviews of the SCAPE discount rate with the valuation cycle.