From the TUC

NAO say that public sector pension costs were “stabilised” before CPI indexing

08 Dec 2010, by in Pensions & Investment

Perhaps the most effective proto-Tea Party campaign in the UK has been the long war against public sector pensions conducted by the TaxPayers’ Alliance and their allies in bodies such as the Institute of Directors. But even their most creative allies in the media (and there are many) have not been able to turn the latest report by the National Audit Office into another attack on soaraway, out-of-control, gold-plated pensions. 

Indeed I’ve only been able to find one on-line news report about it.

Perhaps this is because it completely contradicts an important part of the anti-public service pensions narrative  that the changes negotiated by the last government were meaningless window-dressing – something that I remember John Humphreys felt free to editorialise about when interviewing John Hutton.

This is what the report says:

By making changes in 2007 and 2008 to pension schemes of NHS staff, civil servants and teachers, the Treasury and employers have taken some steps to tackle potential growth in costs to taxpayers. In addition to saving significant sums of money, the changes are projected to stabilise costs in the long-term around their current level as a proportion of GDP.” 

One even begins to think that someone at the NAO is having a quiet laugh with the bit in bold:

We estimate that the 2007-08 changes will reduce costs to taxpayers in 2059-60 5 by 14 per cent compared to what they would have been without the changes. In net present value terms, using the Treasury’s discount rate of 3.5 per cent above increases in RPI, aggregate savings over all years in the period to 2059-60 are equivalent to £67 billion in 2008-09 prices. 

This is because they know that if you use the same discount rates used by the right wing critics this £67 billion figure would be stonkingly higher.

But estimating the costs or benefits of anything that far in the future remains pretty pointless, even when it’s on our side of the argument.

The more important question is whether the state can cover the likely cost of pensions in each future year that they need to be paid. This is why the Treasury – and the NAO and John Hutton’s Commission for that matter – all put much more importance on the share of GDP that will be taken by pension payments.

Here is the NAO’s estimate of the impact of the changes:

annual pensions savings as share of GDP 

0.2 per cent of GDP – the maximum saving – may not seem much, but given that the likely cost of pensions is always below 2 per cent, this is clearly significant.

But what is very important to note is that this report only looks at the impact of the changes negotiated under the last government.

It takes no account of this government’s decision to index future pensions to CPI rather than RPI. Both John Hutton’s Commission and the PPI agree that this takes a further 15 per cent out of public sector pensions.

And this is why the right are so silent today. The evidence is mounting that public sector pensions are far from gold-plated and have already been significantly reduced in value by both the negotiated changes and the imposition of CPI indexing.

This chart from John Hutton’s review (pdf)  shows that the costs of public service pensions are projected to fall as a share of GDP.

We can see that public sector pensions are perfectly affordable and under control. Further government attacks are unjustified.

2 Responses to NAO say that public sector pension costs were “stabilised” before CPI indexing

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    Dec 8th 2010, 9:55 pm

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