Pensions in UK Could Fail, Leaked Letter Reveals

By Louis Makiello, Epoch Times
July 28, 2011 Updated: July 28, 2011

In a leaked letter, Britain’s Health secretary was exposed as expressing severe doubts about plans to reform public sector pensions.

In a private letter to the chief secretary of the treasury—the United Kingdom’s third most senior minister—written in April and leaked to the Daily Telegraph this week, Health Secretary Andrew Lansley 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 National Health Service (NHS) pension schemes, leaving the treasury with reduced income while still having to pay for past pension promises, he wrote.

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 instead be 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 that in the NHS it currently takes an average of 18 years to receive a pension, and as such, it seems unrealistic to suggest that the pension scheme design should be based on 48-year careers in future to receive a full pension.

Lansley also wrote, “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.”

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.”

A Department of Health spokesman said in a statement responding to the leak: “Things have moved on since this was written.”

The chief secretary last month put forth 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 letter said that government is committed to keeping public service pensions strong, but since people are living longer, pensions are costing taxpayers more, “so it is only fair that public service workers pay more toward them.”

TUC General Secretary Brendan Barber said that the letter accurately expressed the views of union negotiators and confirms that the government is grabbing money from public-sector workers to pay down a deficit, money they did nothing to create.

Barber says the government making a grab of public sector pensions and imposing so many extra costs on workers that “there is a very real danger that staff will simply opt out of their pensions.”

This would increase the deficit, as the government will still have to pay current pensions but will not get any benefit from the contributions of those who leave their schemes.