LICY to tackle a £1bn black hole in the public sector pension bill was unveiled by George Osborne during his Budget speech yesterday.
The chancellor announced plans to make government departments foot the bill for a greater share of pensions, after a shortfall across the teachers’, civil service and NHS pension schemes that runs to nearly £1bn a year was uncovered.
“We will ensure schemes are properly valued, saving the taxpayer over £1bn a year,” Osborne said yesterday during his speech. The Treasury currently pays for public sector pensions out of its own budget.
The new plans will weigh heavy on the shoulders of some departments, already facing large budget cutbacks, but are set to save the Treasury £725m a year in 2015/16 in annual managed expenditure, rising to £1bn in 2016/17 and beyond.
The announcement may pass largely under the radar amidst headline policies on ISAs and tax cuts, but it represents one of the largest sources of income to Exchequer coffers over the next four years. Between 2015 and 2019 alone it is set to net £3.77bn for the Treasury.
Labour has accused the government of imposing back-door cuts on many departments, including education, but coalition ministers say they will implement the reforms set out in John Hutton’s report.
“Ongoing analysis of what is a fair contribution is the final stage of the reforms, which will ensure that long-term costs of public service pensions remain under control and are fairly distributed between employees, employers and taxpayer,” chief secretary to the Treasury Danny Alexander said earlier this month.
Further changes to public sector pensions were revealed in the Budget yesterday.
As part of the chancellor’s plan to free up savings and give older people more control over their pension pots, Osborne announced retirees will no longer have to buy annuities when they stop working. Those with defined benefit public sector pensions will be excluded, however.