Press Release - HM Treasury: The impact of the 2007-08
changes to public service pensions
8 December 2010
Changes made in 2007-08 to the pension schemes
of civil servants, NHS staff and teachers are on course to deliver
significant savings and stabilise pension costs around their
current levels as a proportion of GDP. The changes are also set to
transfer, from taxpayers to employees, extra costs if pensioners
live longer than currently expected.
However, a report by the National Audit Office
today warns that the value for money of the changes cannot be
demonstrated, because the Treasury and employers did not agree the
long term role of pensions in recruitment and retention of staff
and the Treasury no longer has a financial objective against which
to monitor the impact of the changes. In addition, the Treasury has
not managed the risk that overall costs to taxpayers will be
greater as a proportion of GDP, if growth in GDP is permanently
less than expected.
The 2007-08 changes affected schemes that
account for nearly three-quarters of UK public service
pay-as-you-go pension payments and were the first financially
significant changes to these schemes since the 1970s. There were
immediate increases in employee contributions for NHS staff and
teachers, following earlier increases for civil servants. The
normal pension age was raised for new staff, from 60 years to 65
years in most cases. In addition, a new cost-sharing and capping
measure was introduced to transfer, from employer to employees, the
risk of extra costs from changes in factors such as pensioners
living longer than previously expected.
The NAO estimates that these changes will
reduce costs to taxpayers in 2059-60 by 14 per cent compared to
forecasts made without the changes. Aggregate savings over all
years in the period to 2059-60 are equivalent to £67 billion in
2008-09 prices.
Amyas Morse, head of the National
Audit Office, said today:
“By making changes in 2007 and
2008 to pension schemes of NHS staff, civil servants and teachers,
the Treasury and employers have taken some steps to tackle
potential growth in costs to taxpayers. In addition to saving
significant sums of money, the changes are projected to stabilise
costs in the long-term around their current level as a proportion
of GDP.
“However, the savings are
being provided by public service employees, in the form of
increased contributions or reduced future pensions. We have
not seen a strategic assessment of the long term impact of these
changes on the motivation and retention of staff, so we cannot say
that VFM has been demonstrated.”
Notes for Editors
1. Press notices and
reports are available from the date of publication on the NAO
website, which is at http://www.nao.org.uk/. Hard copies can be
obtained from The Stationery Office on 0845 702 3474.
2. The Comptroller and
Auditor General, Amyas Morse, is the head of the National Audit
Office which employs some 900 staff. He and the NAO are
totally independent of Government. He certifies the accounts
of all Government departments and a wide range of other public
sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 63/10
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