Treasury cannot show value of public sector pension cuts

The Treasury is unable to effectively demonstrate the value for money of changes to public sector pensions, the National Audit Office (NAO) warns.

In 2007-08, the government increased contributions of teachers and civil servants to pension schemes as well as raising the pension age of new staff from 60 to 65 years.

The NAO says whilst these changes has saved money, the Treasury and public sector employers do not know what value for money this saving represents.

This is because the Treasury did not agree the long term role of pensions in recruitment and retention of staff, and it has no financial objective against which to monitor the impact of the changes.

The Treasury has also not managed the risk of overall costs to taxpayers becoming greater as a proportion of GDP if GDP growth is lower than expected, the report says.

The NAO estimates the changes will reduce costs to taxpayers in 2060 by 14%, compared to forecasts made without the changes.

"The savings are being provided by public service employees, in the form of increased contributions or reduced future pensions," says Amyas Morse, head of the NAO.

"We have not seen a strategic assessment of the long term impact of these changes on the motivation and retention of staff, so we cannot say that value for money has been demonstrated."

However, TUC general secretary Brendan Barber says the report shows enough savings have already been made in public sector pensions. She says further plans to switch from final salary to career average arrangements, as well as index benefits by CPI, are unnecessary.

"The NAO analysis does not even take into account the new government's decision to link future pension increases to the lower CPI measure of inflation rather than the traditional RPI indicator," says Barber, pictured.

"Independent research shows this move will slash 14% from the value of pensions.

"Yet the NAO research shows pension costs are under control without the change to the CPI link, and asks the government hard questions about whether pensions are doing enough to recruit and retain staff."