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Departmental Pensions

Volume 475: debated on Tuesday 29 April 2008

To ask the Secretary of State for the Home Department (1) what her most recent estimate is of the unfunded liability in present value terms of each public sector pension scheme for which her Department is responsible; and on what assumptions for (a) discount and (b) longevity the estimate is based; (200741)

(2) what the unfunded liability in present value terms was of each public sector pension scheme for which her Department is responsible in each year since 1990-91;

(3) what the (a) rate and (b) cost was of employer contributions for each public sector pension scheme for which her Department has responsibility in each year since 1990-91; and if she will make a statement;

(4) what the effect on her Department’s expenditure would be of increasing the employee contribution to each pension scheme for which her Department is responsible by one per cent.; and if she will make a statement.

Individual police authorities rather than the Home Office are required to account for police pension liabilities. Each authority’s liability along with details of certain assumptions used in the calculation of the liability are published by each authority in its annual accounts. Data from those accounts are compiled each year by the Chartered Institute of Public Finance and Accountancy (CIPFA). These are available either for purchase or via subscription on the CIPF website,

www.cipfa.org.uk.

The Government Actuary’s Department (GAD) has estimated the unfunded liability of the police pension scheme in England and Wales to have been £70 billion as at 31 March 2006, based on data from police authorities’ published resource accounts. This is part of the figure of £650 billion discussed in box 4.3 of the Long-Term Public Finance Report published in March 2008 and available at:

http://www.hm-treasury.gov.uk/media/A/E/bud08_longterm_586.pdf.

The discount rates used are also discussed there, but the longevity assumptions used have not generally been disclosed by police authorities.

The earliest comparable estimates of the unfunded liability of the police pension scheme are in the note placed in Library by my right hon. Friend the then Chief Secretary to the Treasury on 2 March 2006, which gave combined UK wide figures for the police and fire service pension schemes of £64 billion as at 31 March 2004 and £85 billion as at 31 March 2005, based on data from police and fire authorities’ published resource accounts. The note is available at:

http://www.hm-treasury.gov.uk/media/4/A/foi_publicservicepensions260406.pdf.

The discount rates used are discussed in that note, but the longevity assumptions used have not generally been disclosed by police authorities. No breakdown of those figures is readily available and could be obtained only at disproportionate cost. Although we have previously provided some estimates of the police pension scheme’s unfunded liability prior to 2004, they were not based on data from police authorities’ published resource accounts, and so are not comparable with the aforementioned figures.

There were no employer contributions for police pensions for the years prior to 2006-07 since until this point police authorities had to meet the cost of pensions in payment out of their operating accounts. However, the system for financing police pensions changed on 1 April 2006. Police authorities now have a separate pensions account, into which they pay officers’ contributions and a new employer’s contribution. Any shortfall in an authority’s pensions account each year is topped up with a grant from central Government; any surplus is recouped. The employer contribution rate is a combined one for both the Police Pension Scheme 1987 (PPS) and the New Police Pension Scheme 2006 (NPPS). In 2006-07 and 2007-08, the employer contribution rate was 24.6 per cent. of each officer’s average pensionable pay, and was reduced to 24.2 per cent. with effect from 1 April 2008. Returns from individual authorities show a total employer contribution cost of £1.108 billion for 2006-07 based on forces’ unaudited accounts, and £1.151 billion for 2007-08 based on forces’ estimates.

The employee contribution rate for the PPS is currently 11 per cent. of pensionable pay, and 9.5 per cent. for the NPPS. The annual saving from increasing these rates for police officers in England and Wales would be £47 million, based on 1 per cent. of the estimated annual pensionable payroll in 2007-08. Such a change would, in isolation, reduce the call made by police forces on the central Government top-up grant, although this may differ if other changes were introduced at the same time.