WIREDGOV

Research presented recently at a NIESR​ conference on ‘The future of pensions: reforms and their consequences’ finds that the 2015 pension reforms have dramatically changed the pension wealth of public sector workers. Local Government employees and the Civil Service are the ‘winners’ having maintained or secured an increase in the value of their pension by up to 40%. This is in sharp contrast to the Police and Firefighters who have lost around 50% and Teachers and NHS workers who have lost over 25-28% of the value of their pensions over their retired years. In (2015) money terms this means an average non-graduate policeman or fireman has lost £100-115k; a graduate teacher has lost around £60k; an average graduate nurse has lost around £50k over their lifetime; but an average non-graduate local government employee has gained around £35k; and a non-graduate Civil Servant has gained around £16k.

The Great Recession from 2008-14 has accelerated the need for pension reform across the public sector in the UK. A major factor in the need for pension reform is that since life expectancy is rising inexorably then the payout of unfunded pension schemes at the taxpayers’ expense is no longer sustainable.  This is making a major contribution to the fiscal debt problems the country has.

The radical changes which have been implemented to pension schemes across the UK public sector from April 2015 followed the Independent Public Service Pensions Commission Final Report in the UK chaired by Lord Hutton (2011).

This research simulated how these negotiated changes will affect the lifetime (discounted) pension across six public sector schemes, namely: the NHS; the Civil Service; Teachers; Local Government; Police and Fire Services. For all the reformed pension schemes, the DB structure is maintained, but the pension benefit is now linked to Career Average Revalued Earnings (CARE). The authors simulate the occupation specific pension wealth accumulated for a representative employee over the lifecycle factoring in the recent changes to pension conditions.

The implications of the findings are potentially wide-ranging and pose many important public policy questions. Was it fair to impose these pension changes on workers retrospectively when they actually entered these occupations under very different contractual conditions? Did the government mean there to be such a large redistribution of pension wealth away from such key workers as the Police, Firefighters, Teachers and Nurses? Was the highly favourable pension position of the Local Government employees and Civil Servants under the new scheme understood by the government – or did their union negotiators ‘get it right’? What will be the recruitment consequences for the potential future supply of young people into these occupations? What are the implications for inter-generational equity of such a large redistribution of pension wealth away from future generations of key public sector workers? These are all questions that will inevitably have to be faced by future governments who need to recruit the right calibre of people into these key public sector occupations.

Notes for editors: 

This press release is based on an article entitled “Who Wins? Evaluating the Impact of Public Sector Pension Scheme Reforms” written by Alex Danzer, Peter Dolton and Chiara Rosazza Bondibene.

The financial support of the Economic and Social Research Council grant reference ES/L014920 is gratefully acknowledged. Guidance received from Margaret McEvoy and her colleagues at the Office of Manpower Economics, BIS is also acknowledged although OME takes no responsibility for the contents of this paper and it may not represent the views of OME or BIS.

To discuss the article or for a copy of the paper, please contact Prof Peter Dolton or Dr Chiara Rosazza Bondibene:

peter.dolton@sussex.ac.uk or 01273 877270

c.rosazza_bondibene@niesr.ac.uk or 020 76541917