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Public Service Schemes - Government Proposals

The Government’s spending review in October 2010 announced the move to generate an additional yield of approximately 3% (£1.8bn) from employee contributions by 2014/15, starting in 2012/13.  The savings are to be modelled progressively with 40% in the first year, 80% in the second and 100% in the third.  Achieving savings of this magnitude is a firm part of the Government’s deficit reduction programme.

The Government has added that its policy in relation to these increases is that they should:

  • Be progressive, i.e. those on higher salaries should make higher contributions
  • Protect the lower earners in schemes
  • Minimise the consequences of increases in opt-outs from the schemes.

In the unfunded schemes, including TPS and NHSPS, the Chancellor has indicated that £1.8bn of savings is required, plus £1bn that had already been signalled as savings arising from the cap and share provisions in place in the schemes.  The Treasury has modelled this amount across all the unfunded schemes, irrespective of existing scheme differences in contribution levels or benefits structure.  The only scheme that is being explicitly excluded is the Armed Forces Pension Scheme.  The effect of the exclusion of this scheme is to produce an average target yield figure of 3.2%. 

The Treasury has also signalled the share to each scheme reflecting the provision that lower earners should be protected from increases, such that certain public schemes with no or fewer “low earners” (e.g. TPS) are presented with a potential higher target figure.  Each scheme has been charged with producing a proposal for treatment of the increases that would deliver the required savings or yield. 

In the funded LGPS the Treasury has informed the Department for Communities & Local Government that a 3.2% saving is also being required of the scheme, through contributions increases and to the same timeframe, to deliver a yield of £900m by 2014/15.  The saving that this would deliver to Government is being built into reduced DCLG block grant to the local authorities.

Some initial modelling, presenting employee contributions increases in isolation from any other developments that are impacting on the public schemes, has been seen in relation to LGPS and TPS and these have raised considerable anxieties.

For the schemes operating in the devolved administrations, these requirements do not apply.  However, it will be important to monitor developments in the coming months, as decisions are taken by the devolved administrations on public finance and the extent to which the administrations may also look to the public sector pension schemes as an option to address shortfalls in funding.

For more details on the current situation, including the launch of Government consultations on the TPS, NHS and Civil Service Schemes and the co-ordinated HE sector response to them please use the links below

Trade Union Reactions

Actions by the Local Government & Teachers’ Schemes Group of EPF

Govenment Consultations