HM Treasury urged to consider pensions power for recruitment

pensions power

According to a report from the NAO, Treasury is failing to consider how public pensions could be used for recruitment and retention of staff

HM Treasury is focusing too much on affordability and failing to consider how public pensions could be used for “recruitment and retention of staff”, according to a report from the National Audit Office (NAO).

The NAO’s Public Service Pensions Summary examined the armed forces’, civil service, NHS and teachers’ pension schemes, which are the four largest pay-as-you-go (PAYG) public service pension schemes, and outlined changes since the Hutton Review had begun a fundamental structural review of public service pensions in 2010, as well as looking to highlight key challenges for the future.

The current and unresolved issues highlighted included the fact that some employers found the arrangements “inflexible for supporting their workforce plans” and the Treasury’s public sector pension strategy focussing on affordability and failing to “consider the needs of employers or the role of pensions in the recruitment and retention of staff”.

The report continued: HM Treasury’s objectives (since 2012) do not consider the role of pensions in supporting the recruitment and retention of staff across public services, and its single formal measure for public service pensions considers affordability.

The Cabinet Office is responsible for cross-government workforce planning and senior civil servant remuneration, and individual employers are responsible for ensuring the remuneration package they offer attracts the staff they need in other grades, within the wider pay policy HM Treasury sets, it stated. There is little progress since our 2010 report when we noted that HM Treasury and employers had not agreed a long-term strategy for how pensions support recruitment and retention.

The report stated that the Treasury needed to “monitor more than just affordability” and called for it and the Home Office to “work closely with employers to understand how public service pensions can best support their workforce planning”.

The report found that the four largest public service pay-as-you-go pension schemes in the UK paid out total benefits of £33.5bn in 2019-2020, a real term rise of 105 per cent in 20 years.

The schemes examined more than eight million members at 31 March 2020, of which 2.8 million were retired and receiving pension benefits, and 5.2 million were either current or former employees, while the report stated that around 25 per cent of pensioners and 16 per cent of the working-age population were members of a public service pension scheme.

The number of pensioner members of the schemes had risen 69 per cent during the 20-year period.

The report asserted that this increasing number of pensioners was the main factor driving the growth in total payments, with £10.1bn of the £17.1bn rise in payments over the last two decades relating to the rise in pensioner numbers.

The four schemes received total taxpayer funding of £25.4bn in 2019-20, including employer contributions and a balancing payment from HM Treasury, with the proportion of funding coming from employers rising as responsibility for the schemes has shifted away from HM Treasury since reforms following the Hutton Review.

Meanwhile, total employee contributions into the schemes stood at £8.2bn, 44 per cent higher than before the 2011-2015 reforms introduced following the Hutton Review.

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