Health Secretary Andrew Lansley has criticised plans to reform public sector pensions in a private letter to the Chief Secretary of the Treasury.
The letter, written in April and leaked to the [i]Daily Telegraph[/i] on Monday, July 25th, warns that the coalition government would not be able to meet its commitment to maintaining “gold standard pensions”. Reforms could prompt staff to opt out of NHS pension schemes, leaving the treasury with reduced income while still having to pay for past pension promises, he says. Lansley expressed his fear that key public workers could strike over the reforms.
The government plans to reform public service pensions on the basis of the Hutton Report, published in March, and is currently in negotiations with trade unions. The report argues that existing pensions, which are now based on workers’ final salaries, should be instead based on workers’ average pay. It also wants to raise the retirement age and put a cap on the cost of public sector pensions for the taxpayer.
Lansley wrote in the letter: “In the NHS currently, the average full time career for those taking a pension is only 18 years and it seems unrealistic to suggest that pension scheme design should be based on the assumption that a predominantly female workforce would need to work full time 48-year careers in future to receive a full pension. It is also difficult to see how this meets our commitment to maintain gold standard pensions.
“There is also the risk that lower paid staff in particular will simply opt out, leaving HMT [HM Treasury] with reduced receipts in the short term while still having to pay for past pension promises.”
He added: “In the NHS, if it appears that we intend to significantly reduce the value of future accrual we also face the risk of opt out from higher paid groups as well as the lower paid. GPs for instance pay both employer and employee contributions and can choose to invest them elsewhere or take them as pay.”
He said that this would create significant financial pressure on the social security budget both in the short and long term.
Lansley warned that unless the government’s plans were changed “it is difficult to see how a negotiated agreement could be reached with the trade unions”.
“We face a real risk, if we push too hard, of industrial action involving staff groups delivering key public services,” he wrote.
A Department of Health spokesman said in a statement: “Things have moved on since this was written.
“Last month the Chief Secretary set out the government’s commitment to protect the low paid and ensure low and middle income earners get a pension at retirement broadly as good as they get now.
“And less than 10 days ago the whole of Cabinet signed up to the need for pension reform and agreed to further talks taking place on a scheme by scheme basis.
“The government is committed to public service pensions remaining among the very best available. But people are living longer, which means pensions are costing taxpayers more, so it is only fair that public service workers pay more towards them.”
TUC General Secretary Brendan Barber said in a statement: “This is a letter that could have been written by any of the union negotiators. Mr Lansley endorses almost every point the unions have made.
"He confirms that the government is grabbing money from public sector workers to pay down a deficit they did nothing to create, even at a time when their pay is frozen for two years and many are facing job losses.
“Most tellingly he says the government is trying to take so much out of public sector pensions and impose so many extra costs on workers that there is a very real danger that staff will simply opt out of their pensions.
“This would have the perverse consequence of making the deficit worse, as the government will still have to pay current pensions but will get no benefit from the contributions of those who leave their schemes.”