Andrew Lansley: the NHS pension scheme - for a sustainable future

Reform of public sector pensions is the major industrial relations issue facing the NHS. However, I believe that introducing sustainable arrangements, fair to staff and fair to the taxpayer, are essential if the NHS Pension Scheme is to retain its place at the heart of the reward package for NHS staff. That’s why NHS leaders need to be engaging with the NHS workforce on this issue.

Pensions matter to staff. The Department of Health received almost 9,000 responses to its consultation on the proposed increases in employee pension contributions.  We know there is considerable anxiety among staff about both the proposed increase in contributions and future changes.

But the case for change articulated in Lord Hutton’s report released in March is overwhelming. He made it clear that the changes introduced under the last government were not sufficient to put public service pensions on a sustainable and affordable footing for the long term.

Most of the cost of improvements in longevity have fallen on the taxpayer. A male pensioner in the NHS scheme who retires at 60 today is expected to spend 41 per cent of their adult life in retirement compared with 28 per cent if they retired in 1955, meaning that the value of a public service pension is around a third higher. However, the average contributions paid by NHS Pension Scheme members has only increased by 0.5 per cent of pensionable pay (in 2008).

The 2008 NHS pension changes allowed existing staff to retain their current arrangements while passing the cost of future longevity improvements on to the next generation of NHS workers. Lord Hutton’s proposals allow for a greater proportion of the cost of longevity to be borne by those who benefit from the improvements.

Final salary pension schemes disproportionately advantage higher paid staff. High flyers receive as much as double the amount of pension in relation to pounds of contributions paid compared with low flyers, even with tiered contributions. Indeed, currently the highest paid in the NHS pay less in contributions net of tax relief than do middle income earners.  

It is critical for sustainability that public service pension scheme members are seen to make a fair contribution for their pensions. The overall 3.2 per cent increase in contributions that we have proposed is proportionate, given the value of the benefit staff receive. We have sought in our proposals to strike a balance between being fair to the taxpayer and fair to staff.

On 2 November, the government issued a revised pension offer to the public sector workforce. This is a generous defined benefit pension offer that will ensure future generations of public service workers will continue to receive pensions among the very best available.

In return, the government is asking that public service workers pay more towards their pensions and for most, work a little longer so that they can receive pensions that are significantly more generous than their private sector counterparts.

This offer significantly exceeds Lord Hutton’s minimum recommendation in relation to income replacement rates in retirement.  

In summary:

• accrued rights will be  protected;
• public servants with less than ten years to their pension age will receive additional protection;
• the new Career Average scheme that the government is proposing will have a very good accrual rate of  1/60^th so low and middle earners should receive broadly the same pension as now albeit at their new retirement age;
• although contribution rates will increase, their impact is reduced by tax relief;
• the government actuary’s department have estimated that staff will see a return of at least £3-£6 for every £1 of member contributions.

The government’s offer is conditional on reaching agreement with the trade unions. If agreement has not been reached, the government may need to revisit the current offer.

Since March, the government has been in constructive discussions with the public sector trade unions. I have personally met twice with the NHS trade unions to hear their concerns and am committed to further meetings. It has been challenging that these discussions have been carried out against the background of several trade unions balloting for industrial action. I strongly believe that industrial action in the NHS is in nobody’s interest and is premature given that we are still engaged in meaningful talks.

I appreciate the work that NHS managers are taking forward to mitigate the impact on patients of any industrial action. I have great regard for your professionalism and commitment in planning to maintain services for patients.

Therefore, it is important that employers engage with their staff on pensions and ensure that they are fully informed about the offer and what the changes mean for them. I have written to all chairs of NHS organisations asking them to ensure that they communicate with their staff on the pension changes using the materials we have provided.

We want staff to continue to belong to the NHS Pension Scheme in the knowledge that it remains among the very best available.

Details of the revised pension offer are available at http://www.hm-treasury.gov.uk/tax_pensions_index.htm