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Treasury must fix £17bn pensions error say MPs

MPs on the influential Public Accounts Committee (PAC) have published a damning report criticising the Treasury for failing to fix what it calls a £17bn error on public service pensions that has disadvantaged younger workers, women and other groups.

The PAC reports says the Treasury should have foreseen age discrimination issues that gave rise to the 2018 McCloud judgment.

The McCloud judgement found the Government had discriminated against younger pension scheme members by not giving them the same protection as older workers.

In 2011 and 2015 the Treasury introduced reforms designed to make public service pensions more sustainable and affordable, but a 2018 Court of Appeal judgement (the McCloud judgement) then ruled parts of the reforms were unlawful.

According to MPs on the PAC, instead of fixing the problem the Treasury now wants pension scheme members to pay the estimated £17 billion cost to fix the mistake, despite the Treasury reforms causing the original blunder.

The PAC says it will many decades to resolve the problems and it has also criticised the Treasury for failing to produce enough data to assess the issues correctly.

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It says many women have also lost out but the Treasury has not done enough to help women and other groups, including ethnic minorities, bridge the gaps between their pensions and those of other workers.

Around 25{d4ee6c39d3f4947aa08b0ac18d9d8b61a7295d521c90ad86a8a514771ea81e11} of pensioners and 16{d4ee6c39d3f4947aa08b0ac18d9d8b61a7295d521c90ad86a8a514771ea81e11} of the working-age population are members of one of the four largest public service pension schemes. The schemes cover the armed forces, civil service, NHS and teachers. The schemes are almost all unfunded, meaning retirees’ pension benefits are paid out of current workforce contributions, says the PAC.

In compiling its report, MPs saw “evidence of public service pensions issues affecting delivery of frontline services, and independent schools opting out of pension schemes because of increasing costs.”

The PAC says the Treasury does not have the data it needs and the PAC is “not convinced it is on track.” 

MP says the Treasury also seems unconcerned about the drop in enrolment by some workers, particularly younger ones.

The Committee warns of the “a danger of a perfect storm where some young people believe they cannot afford pension contributions because of high costs of living and retire with a reduced public sector pension as a result.

Meg Hillier MP, chair of the Public Accounts Committee, said: “The Treasury’s £17 billion mistake on pensions reform is a ripple compared to the tsunami of costs to the public purse if Government fails to address the growing number of young people unable to afford to plan for a proper pension.

“It’s lack of curiosity about why nearly a quarter of a million workers are not joining these pension schemes is a concern. Pension planning must be long term; mistakes and poor planning have an impact for decades. Short term cost savings can become long term costs to individuals with lower retirement incomes and the taxpayer who may end up supporting them.”

• Full report: Public Sector Pensions [PDF 276 KB]

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