News story

Public service pension reform nears conclusion

This news article was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

One of the final elements of the government’s comprehensive public service pension reform programme has today been set out by the Chief Secretary to the Treasury, Danny Alexander.

The government’s policy on valuations of the main public service pension schemes and plans for an employer cost cap were published in Public service pensions: actuarial valuations and the employer cost cap mechanism today.

The reforms are part of wider changes which will deliver better value for the taxpayer, while keeping the pensions offered to public service workers among the very best available. Employees and pensioners will be unaffected by today’s announcement.

The government can confirm today that the near-final valuations by the Government Actuary’s Department are expected to reveal that the current contribution rates are insufficient to meet the full costs of the schemes in the future. If current rates were allowed to continue, the shortfall would be nearly £1 billion a year across the teachers’, civil service and NHS schemes.

The final results will be published over the coming months and changes to employer contribution rates will come into force in 2015. Where the new valuations show that they have not been paying enough into the schemes, employers (e.g. in government departments, education and health sectors) will need to increase their contributions in line with the results of the new valuations.

The government’s full package of long term public service pension reforms, including raising retirement ages and increasing member contributions, are forecast to save almost £430 billion over the next five decades. These changes will help to put the long term public finances back on a sustainable footing.

As part of the reforms, it is necessary to establish exactly what the pension schemes cost. The government is therefore in the final stages of conducting the most comprehensive valuation of the schemes ever, and assessing whether public service employers have made the proper level of contributions in the past.

The Chief Secretary also outlined details of a new cost cap mechanism for the new public service pension schemes. This framework will ensure that the long terms costs are always controlled, providing protection for the taxpayer and ensuring that the risks of changes in costs are shared equitably with scheme members and employers. This fulfils a recommendation in Lord Hutton’s review into public service pensions to introduce employer cost caps for the schemes.

Chief Secretary to the Treasury, Danny Alexander, said:

An excellent pension has long been part of the reward for a career serving the public. It is only possible to ensure that public service workers continue to have among the best pensions available if we also control the costs in the long term.

Our reforms overall will save nearly £500 billion. Ongoing analysis of what is a fair contribution is the final stage of the reforms, which will ensure that long term costs of public service pensions remain under control and are fairly distributed between employees, employers and taxpayer.