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New commission to undertake “fundamental” review of public sector pensions

The government has announced the creation of a new commission to undertake a “fundamental” review of public sector pensions to ensure their “fairness and sustainability”, the Treasury has announced.

The Public Service Pensions Commission, to be chaired by former Labour cabinet minister John Hutton, will make recommendations for delivering savings within the spending review period in time for the Spending Review in the Autumn before publishing its full recommendations in time for the Budget in 2011.

The commission, which the government described as 'independent', will examine:

  • the growing disparity between public service and private sector pension provision, in the context of the overall reward package – including the impact on labour market mobility between public and private sectors and pensions as a barrier to greater plurality of provision of public services;
  • the needs of public service employers in terms of recruitment and retention;
  • the need to ensure that future provision is fair across the workforce;
  • how risk should be shared between the taxpayer and employee;
  • which organisations should have access to public service schemes;
  • implementation and transitional arrangements for any recommendations; and
  • wider Government policy to encourage adequate saving for retirement and longer working lives.

The Treasury emphasised that accrued rights in public sector pensions would be protected.

John Hutton said: "Reform of public sector pensions is a huge challenge for both the public finances and the public sector workforce. I welcome the opportunity to lead a root and branch examination of both the short-term and longer-term options for reform to public sector pensions. I am determined that this work should be conducted openly and transparently and that our conclusions will be underpinned with a comprehensive analysis and evidence-base."

The Chancellor, George Osborne, said: "The long-term sustainability and affordability of public sector pensions is crucial for sustainable public finances both in the UK and internationally. We must consider options for reform that are fair to the taxpayer and to people who work in the public sector. I am delighted that John Hutton has accepted my invitation to chair the Commission. John is an experienced public servant, who I know will bring a clear and unbiased analysis to bear on this complex and important issue. "

The government estimates the total cost of unfunded public service pensions in 2010/11 to be  at £25.4 billion, excluding funded schemes such as the Local Government Pension Scheme, while the the Office for Budget Responsibility said last week that the gap between contributions and pensions in payment is set to more than double over the next four years to £9 billion.

The Government Actuary’s Department (GAD) has estimated the long-term liability of unfunded public sector pensions, excluding funded schemes such as the Local Government Pension Scheme, at £770 billion as at 31 March 2008.

The schemes to be covered by the review are:

For civil servants:

  • Principal Civil Service Pension Scheme
  • Principal Civil Service Pension Scheme (Northern Ireland)
  • Armed Forces Pension Scheme

 

For NHS employees:

  • NHS Pension Scheme
  • NHS Superannuation Scheme (Scotland)
  • Health and Personal Social Services Northern Ireland Superannuation Scheme

 

For teachers:

  • Teachers’ Pension Scheme (England and Wales)Scottish Teachers’ Superannuation Scheme
  • Northern Ireland Teachers’ Superannuation Scheme

 

For Local Government:

  • Local Government Pension Scheme (England and Wales)
  • Local Government Pension Scheme (Scotland)
  • Northern Ireland Local Government Pension Scheme
  • Police Pension Scheme (administered locally)
  • Firefighters’ Pension Scheme (administered locally)

 

United Kingdom Atomic Energy Authority Pension Schemes

Judicial Pensions Scheme

Department for international Development – Overseas Superannuation Scheme

Research Councils’ Pension Schemes

In addition to the schemes mentioned above, the Treasury said that a number of smaller schemes – including some established to cover single senior appointments - will be required to act on the Commission's recommendations but will not form part of the review.
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