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The Actuary The magazine of the Institute & Faculty of Actuaries

More re-announcements on pensions?

In his Pre-Budget Report (PBR), Alistair Darling told the House of Commons: “Public pensions need to be broadly in line with those offered in the private sector. So by 2012 contributions by the state to public service pensions for teachers, local government, NHS and the civil service will be capped — saving around £1bn a year. Public sector workers will make a greater contribution to the increasing value of pensions, with those earning over £100,000 paying more.”

Yet, according to Watson Wyatt, this announcement concerned savings that had already been banked and will not make an additional contribution to curbing the budget deficit. They say the Long Term Public Finance Report, published alongside the PBR, hints that the costcapping measures referred to were those agreed with public sector unions following the government’s 2005 decision to allow existing members of the main public sector schemes to continue accruing benefits that could be taken in full from the age of 60. So the new announcement may simply be that the government wants the public sector employees with the highest earnings to meet more of the cost.

John Ball, head of defined benefit pension consulting at Watson Wyatt, said: “New evidence on life expectancy since these agreements were reached means that, if they are enforced, they may have a material effect. For example, the government used to assume that 40-year old male civil servants would spend 27 years in retirement, but now thinks they will draw pensions for 30 years. However, this cancels out the extra costs that would otherwise have been incurred, which is not the same as reducing the cost of public sector pensions. It certainly does not ensure that public pensions are ‘broadly in line’ with those offered in the private sector.”