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NHS pension scheme deficit predicted within three years

The Office for Budget Responsibility has forecast the NHS pension scheme will pay out more money than it receives in 2013-14, meaning it will require a £500m Treasury bailout.

The OBR’s analysis shows spending by the NHS pension scheme in 2011-12 will leap by £600m from the government’s own forecast in March to £7.7bn. Predicted payments into the scheme – which come from both NHS employees and employers – have also been revised down this year, by £400m to £8.5bn.

By 2015-16 the NHS pension scheme will be in deficit by £1.2bn, even though a £200m surplus was predicted six months ago.

The OBR report said the rise in predicted payouts “reflects the latest in-year data, which shows an increase in retirement and average lump sum payments, and higher than expected pension lump sum commutation rates over the last couple of years”.

Commutations replace some of an annual pension with an additional tax-free lump sum.

The report said the new figures were also due to reduced pension contributions “to reflect the consequences of the pay restraint measure announced in the autumn statement”. Public sector wage rises will be capped at an average of 1 per cent for two years from April 2013.

Thousands of NHS staff went on strike last week over proposed reforms to the NHS pension scheme. Unison has previously said large public sector pension deficits were a “myth”, with income exceeding outgoings by “some £2bn in the case of the NHS pension scheme”.

The actual estimated surplus for this year has been slashed to £0.8bn.

Mark Packham, a director in PricewaterhouseCoopers’ public sector pensions practice, said: “The other major unfunded schemes – civil service, teachers and armed forces – were already cashflow negative, but we had not expected the NHS pension scheme to get there until late this decade.”

Readers' comments (7)

  • This sudden change might be due to many taking early and 24 hour retirement due to the recent Government posturing. Warnings like, we'll tax the lump sum and you'll have to work longer, pay more and get less are typical reasons why I see many retiring now. Of course add to that the many posts being cut in the present climate, and if you were in pensionable age why wouldn't you take it now. So the balance has been destabilised. Just like when Gordon Brown taxed the final pension schemes. Unfortunately this is a direct result of the way the public sector pension has been threatened by the government. I went to a Regional NHS pension meeting about 18 months ago and the view of the informed was that the changes already made to the scheme made it value for money and meant it was sustainable. Of course if the idea is to allow private companies in to undercut traditional providers, demoralising the exhisting workforce would aid that process. I can't think of a more efficiant way to demoralise the rank and file providers, both clinical and non clinical, than to mess with their future security. One day we'll look back and it will be all gone.

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  • It should be no surprise that when the government cuts NHS staff numbers, payments into the pension scheme drop; and when they force more to retire, payments from the scheme increase!

    This does not necessarily mean that individual contributions should rise, though. If we follow such an argument to its logical conclusion, the last person left paying in to the NHS pension scheme (when everyone else has been out-sourced to AWPs, Soc Enterprises etc) would have to pay £8bn+ per year in pension contributions!
    The government is trying to balance the contributions in with the total payments out, but this is not logical. It is important that the figures quoted by OBR and Mark Packham are not extrapolated beyond what they actually state.

    On a different tack, my teacher children would hotly dispute the statement from Packham that their teacher pension scheme is currently underfunded.

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  • It's a rubbish time to be 49 in my opinion...

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  • I am surprised at their surprise that so many choose to reduce their annual pension in return for a much higher, tax free lump sum. Any contributions paid into the scheme by female employees before 1989 do not go into the calculations for a widowers pension. The only safe way therefore to protect your husband financially after your death therefore is to take a bigger lump sum and invest it. Not rocket science. This was inevitable once the opportunity was introduced to take a bigger lump sum - and the NHS has rather a lot of female employees.......

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  • who did the forecasting? a £1.4bn change round in 6 months.

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  • Well considering it has beeing paying a surplus for many years this should not be too difficult an issue to address. An awful lot of people are taking their retirements now as they frankly don't trust the Gov, so there will be a significant spike in new pension claims, as a result of previous pension change agreements the take up of the NHS scheme is lower for new staff that previously and the whole thing is turning out to be yet another shambolic illthough out policy which creates a worse problem than the one they tried to solve.
    The major problems willarise if they force through the changes because the number of opt outs will rise significantly making the taxpayer bailout higher and for the Local Gov scheme the changes threatens it in a much more serious way.

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  • 7.06 its even worse if you are 48 and have mental health officer status... their promise that you will not be affected if you are within 10 years of normal retirement age which is at 65 not 55 as I had been planning since 1985!!!!

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