Final salary NHS pensions look set to be abolished after an interim national review found they unfairly benefit “high flyers”.
Lord John Hutton’s interim report on public sector pensions says final salary schemes can “reinforce lifetime income inequality between members.”
Those on high salaries can receive almost twice as much in pension payments per pound of employee contribution than those on lower incomes, the report states.
In addition, high earners can expect to live longer, so receive payments over a longer period, it says.
The final part of the independent review, commissioned by the coalition government, will consider alternatives, such as a switch to a career average scheme.
Managers in Partnership chief executive Jon Restell said pensions based on a career average could result in a “very big cut” in payments to senior NHS managers.
Board directors, currently eligible for a yearly pension worth 1/80th of their final salary, may have started their careers earning relatively little as management trainees or junior administrative staff, he said.
He added: “Better paid NHS staff already contribute more for their pensions than other staff, precisely for reasons of fairness.”
Changes to the NHS scheme in 2005 introduced tiered contributions whereby high earners paid 8.5 per cent of salary, with low earners contributing 5 per cent.
However, the Hutton interim review says this appears to have “reduced, but not removed” the higher benefits for high earners, whose pensions are estimated to be worth 25 per cent of their career average salary, compared with 20 per cent for other members.
It notes that NHS payments are “very dispersed”, with three quarters receiving less than £9,000 a year, but 1 per cent receiving around £55,000 or more.
Lord Hutton also used his report to argue against an extension of “fair deal” rules, under which workers transferred to the private or voluntary sectors receive comparable pension terms.
The report labels the rules a “barrier to non-public service providers, potentially reducing the efficiencies and innovation in public service delivery that could be achieved.”
The Department of Health last month criticised community health social enterprises that used legal loopholes to extend access to NHS pensions to new recruits, in addition to transferred staff.
Lord Hutton’s final report is due to be published “in time for” next year’s budget.
Further changes to the NHS pension scheme will be fiercely resisted by unions. Unison general secretary Dave Prentis told HSJ in May that any “attack” on pensions was likely to lead to national industrial action.