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25 July 2011

Lansley’s attack on pensions reform

Leaked letter reveals Health Secretary's criticisms of "inappropriate" public sector pensions reform

By George Eaton

Yet another leaked letter has emerged from the heart of government and this time it’s Andrew Lansley attacking the government’s public sector pension reforms. In his letter to Danny Alexander, which was leaked to the Telegraph, Lansley warns that the reforms will not meet the coalition’s “commitment to maintain gold standard pensions”. And there’s more, much more. He echoes John Hutton’s warning that the reforms could force public sector workers to opt out of pension schemes altogether.

Lansley writes:

There is also the risk that lower-paid staff in particular will simply opt out, leaving HMT [HM Treasury] with reduced receipts in the short term while still having to pay for past pension promises.

In the NHS, if it appears that we intend to significantly reduce the value of future accrual we also face the risk of opt-out from higher-paid groups as well as the lower-paid.

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GPs for instance pay both employer and employee contributions and can choose to invest them elsewhere or take them as pay.

This would create a significant fiscal pressure in the short to medium term and in respect of lower-paid staff who opt out would increase pressure on the social security budget in the longer term.

Cynics might say that the embattled Health Secretary is trying to curry favour with NHS staff but that doesn’t make his criticisms any less valid. Indeed, perhaps the strongest argument against the coalition’s reforms is that they could have the unintended consequence of the increasing the cost to the Treasury. After all, even before any of the Hutton reforms are introduced, public sector pension payments peaked at 1.9 per cent of GDP in 2010-11 and are set to fall over the next fifty years to 1.4 per cent in 2059-60. The government’s plan to ask employees to work longer and pay more is a political choice, not an economic necessity.

Elsewhere, Lansley argues that parts of the reforms are “inappropriate” and “unrealistic”.and warns they will hit women health workers particularly hard. He writes: “The paper…assumes that public sector workers, many of whom are women, will work a 48 year career [to get a full pension].

“In the NHS currently, the average full time career for those taking a pension is only 18 years and it seems unrealistic to suggest that pension scheme design should be based on the assumption that a predominantly female workforce would need to work full time 48 year careers in future to receive a full pension. It is also difficult to see how this meets our commitment to maintain gold standard pensions.”

As you’d expect, Labour and the trade unions have leapt at the opportunity to present the government as divided on pensions reform. The shadow work and pensions secretary, Liam Byrne, told the Telegraph: “We now know that there is a deep split at the heart of government on these pension negotiations.

“People will want to know why Andrew Lansley has sat on his hands when he secretly believes that other cabinet ministers are seeking a head-on confrontation with public sector workers. This is chaotic and reckless government.”

Meanwhile, Lansley’s department insisted that things had “moved on” since the letter was written.

A spokesman said: “Last month, the chief secretary set out the government’s commitment to protect the low-paid and ensure low and middle income earners get a pension at retirement broadly as good as they get now.

“And less than 10 days ago the whole of cabinet signed up to the need for pension reform and agreed to further talks taking place on a scheme-by-scheme basis.”

All of which sounds plausible enough but, with the unions threatening more industrial action, any further hints of division could prove fatal.