2 Improving clarity and transparency
9. Public service staff do not have a good understanding
of the value of their pensions, in part because employers and
schemes do not provide them with clear and intelligible information.
This means employees are not able to make fully informed decisions
when planning for their retirement and considering alternative
employment options. It also limits the ability of public service
employers to use pensions effectively to aid recruitment and retention.
10. The Deputy Director of the NHS scheme told
us that four in ten members did not understand what size pension
they were going to get and, as a consequence, some had to delay
retiring by three years because their pension was smaller than
they had expected.
In 2011, the NHS scheme will begin to issue annual benefit statements
to its members and in the future it plans to include details of
the capital value of the pensions built up.
These are welcome developments.
11. For some years now, there has been a lack
of clarity about the role public and private sector occupational
pensions should play within the UK pension system.
The system has relied heavily in the past on good occupational
and personal pensions to top up a state pension which provides
a much lower share of retirement income than is typical across
European Union and OECD countries.
However, this model has been undermined in recent decades by a
significant decline in the extent and value of private sector
Public service pensions have not declined by as much, and have
appeared increasingly out of line with private sector pensions.
The Treasury told us that while there should be no "race
to the bottom", it believed public service schemes should
move more in the direction of private sector schemes.
12. Government support, in the form of tax relief
and national insurance rebates, is used to encourage individuals
to save for their retirement through occupational and personal
schemes. This support amounts to around £35 billion a year,
equivalent to more than 2% of GDP.
However, it is not clear how the benefits of this support are
distributed, or whether the spending could be put to better use
elsewhere. The Treasury told us that the cost of the national
insurance rebate alone is forecast to be £6.8 billion in
2012-13, which would be enough to fund a £10 to £15
a week increase in the basic state pension for each recipient.
13. There is a further concern that the level
of taxpayer spending on public service pensions could appear disproportionate
to the amount spent on encouraging other savings for retirement
through tax and other incentives.
The 2007-08 changes have transferred an increasing share of the
future costs of public service pensions from taxpayers to employees.
However, perceptions remain that an unwarranted level of taxpayer
support is directed to public service pensions when compared with
that available to private sector workers, who make up four-fifths
of the total workforce.
14. The implementation of the 2007-08 changes
to public service pensions did not sufficiently take into account
impacts on other areas of public policy and spending. For instance,
there was no assessment of the impact that higher employee contributions
and lower public service pensions would have on the number of
people opting out of their schemes.
Higher opt-out rates would in turn increase future demand for
means-tested benefits. Moreover, the Treasury was not able to
tell us whether wider public service reforms which would give
rise to new types of delivery bodies, such as GP commissioning
consortia and free schools, would affect employees' eligibility
to belong to public service pension schemes in future.
15. More changes to public service pensions are
expected over the next three years to implement decisions announced
by the Government in 2010, and to respond to recommendations in
the Hutton Commission's March 2011 final report on public service
pensions. There are
costs associated with continually changing pension arrangements.
These include increased administration costs and the potential
impact on employees' confidence in the value of their pensions.
The Treasury accepts that it was a weakness of its approach to
the 2007-08 changes that it did not set out clear and measurable
objectives against which to monitor performance over time.
It is important that the Treasury clearly defines the objectives
of any future changes and develops consensus around them, in order
to promote a period of stability for public service pensions.
32 Qq 26-27, 86, 110; C&AG's Report, HC 662, para
Q 36 Back
Q 86 Back
Q 86 Back
C&AG's Report, HC 662, para 3.7 Back
Q 1 Back
Qq 2, 94-95, 122; C&AG's Report, HC 662, para. 1.9 Back
Q 86 Back
Qq 41, 48 Back
Qq 43-46, 54-57; Ev 21 Back
Qq 5, 40 Back
Qq 5, 15-17, 65; C&AG's Report, HC 662, para 3.14 Back
Qq 143-151 Back
Qq 111-114 Back
Qq 101-108; Independent Public Service Pensions Commission, Final
Report, 10 March 2011; HM Treasury, Budget 2011, HC
836, Session 2010-11, 23 March 2011, para 2.12 Back
Qq 36, 101; C&AG's Report, HC 662, paras 6 and 12 Back
Qq 73; C&AG's Report, HC 662, para 8 Back