In 2010, the Treasury invited John Hutton to chair the Independent Public Service Pensions Commission, which was tasked with undertaking a fundamental review of public service pensions, including the NHS pension scheme.
In an interim report published in October 2010, Lord Hutton rejected the myth of “gold-plated” public sector pensions, but also suggested an increased retirement age, and a move away from final salary schemes.
The Commission published its final report, setting out recommendations to the Treasury, this week.
It recommends that the final salary pensions of public sector professionals - including consultants - should be replaced with ones based on career average earnings by 2015.
The report also suggests public sector staff should pay higher contributions and work for longer. In future, it recommends that public sector pensions should be linked to the state pension age, which is due to rise to 68 under government plans.
On the positive side, it says the government should ‘honour in full’ the accrued rights that have been earned by scheme members and maintain the final salary link for past service for current members.
Myths and facts about the NHS pension scheme
The BMA points out that the NHS pension scheme was reformed in 2008, meaning that many of the changes put forward by Lord Hutton in his review already apply in the NHS. The normal pension age for new staff increased from 60 to 65, and employers’ contributions were capped.
Doctors’ contributions increased from an average 6% of salary to an average 8.5% - a 30% rise in the cost.
The NHS scheme is often cited as an example of a ‘lucrative’ public sector pension scheme, which the country cannot afford. However, the BMA says it is not funded solely by taxpayers, but by NHS staff - with higher contributions for the highest paid - and employers, including GPs themselves, who pay employer contributions of 14%.
It was designed to be sustainable over the long term, and to withstand changes in the economic environment through a cost-sharing agreement which protects the taxpayer from future cost increases. The scheme is in a very strong funding position at present; in the years up to 2015/16 it will provide a surplus to the Treasury (over benefits paid out) of £10.7bn. This essentially means that the government is able to borrow money from the NHS pension scheme at a preferential rate.
Increase to normal pensionable age
The BMA believes that an increase in the normal pensionable age for existing NHS staff would be unacceptable, particularly so soon after the introduction of a new scheme to which both unions and employers agreed. There would be a real risk of a staff exodus, as doctors in their 50s - many of whom are eligible for voluntary early retirement - consider their futures.
End of final salary pensions
The BMA rejects the idea that final salary pensions are unaffordable in the long term. The NHS pension scheme represents an example of a successful and sustainable final salary scheme, to both employers and staff. Most doctors pay into it for the majority of their working lives, and most saw their contributions increase significantly with the implementation of the new scheme. Lord Hutton stated in his interim report that final salary does not provide value for money for lower paid employees, yet unions representing the lower paid (such as Unite, Unison and GMB) all support the retention of final salary.
Increasing contributions
The government has already proposed increasing contributions by 3% of NHS pensionable pay, as well as replacing the Retail Price Index with the Consumer Price Index as the method for increasing pension benefits in payment. Consultants currently contribute 8.5% of salary, while lower paid staff contribute 5%. The risk of major increases to contributions is that many lower-paid workers will opt out of the NHS pension, increasing the burden on the state, and also resulting in higher paid workers having to foot the remainder of the bill. The BMA warns that if doctors feel their contributions are too high, the scheme will cease to provide value to them, and many would be likely to opt out, potentially destabilising the whole scheme.
Read more on the BMA’s view.
Tags: Pensions
