Government Slashes Public Sector Pension Costs

16th September 2012

The following statement has been issued by HM Treasury on 16th September 2012.

Public Service Pensions Bill published recently delivered the final stage in halving cost of pensions.

The Public Service Pensions Bill 2013 published recently, the final stage in delivering billions of pounds of savings from reforms. The Bill is forecast to save £65 billion over the next fifty years, a significant proportion of the total of more than £430 billion which the Government's overall package of reforms to public service pensions is estimated to save.

Reforms will reduce public service pensions costs by around half, delivering sustainability for the long-term while ensuring that public service pensions remain amongst the very best available.

The Independent Public Service Pensions Commission published its final report in March 2011. The Government accepted its recommendations as the basis for consultation with public servants, trades unions and other member representatives and this Bill implements the agreements reached:

moving to career average pension schemes, instead of unfair final salary schemes;
asking public servants to work longer to receive a full pension, linking their Normal Pension Age to their State Pension Age, except for the Armed Forces, Police Officers and Firefighters;
protecting those closest to retirement: those ten years from their Normal Pension Age on 1 April 2012 will not see any change in when they can retire, nor any decrease in the amount of pension they receive on retirement;
setting an employer cost cap to ensure that public service pensions remain affordable and sustainable;
creating a high barrier to changes to specific elements of these pension designs for 25 years - a settlement for a generation; and
setting a common legislative framework and improving governance arrangements of public service pension schemes.
The Bill will also close the generous and outdated Great Offices of State pensions for new office holders and move to a scheme equivalent to that available for ministers.
Chief Secretary to the Treasury, Danny Alexander, said:

"This Bill is the final stage in delivering sustainable public service pensions. It will cut the cost to taxpayers by nearly half, while ensuring that public sector workers, rightly, continue to receive pensions amongst the very best available.

"This is a good deal for taxpayers and a good deal for public service workers: a settlement for a generation."

The Office for Budget Responsibility (OBR)'s Fiscal Sustainability Report 2012 (published 12 July 2012) estimated that the Government's reforms will cut the costs of public service pensions by 40 per cent over the next fifty years, with net costs falling from 1.5 per cent of GDP without reform, to 0.9 per cent with reform by 2061-62.