Source · Select Committees · Public Accounts Committee
Sixth Report - Public Sector Pensions
Public Accounts Committee
HC 289
Published 11 June 2021
Conclusions (25)
2
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 …
3
Conclusion
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 …
4
Conclusion
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 …
5
Conclusion
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 …
6
Conclusion
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 …
1
Conclusion
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
7
Conclusion
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 …
8
Conclusion
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. …
9
Conclusion
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 …
10
Conclusion
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 …
11
Conclusion
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 …
12
Conclusion
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 …
13
Conclusion
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 …
14
Conclusion
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 …
15
Conclusion
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 …
16
Conclusion
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 …
17
Conclusion
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 …
18
Conclusion
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 …
19
Conclusion
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 …
20
Conclusion
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 …
21
Conclusion
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 …
22
Conclusion
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 …
23
Conclusion
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 …
24
Conclusion
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 …
25
Conclusion
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 …