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Public Service Pensions: Cost Of Indexation

Volume 413: debated on Monday 20 October 1980

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My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government what is the latest forecast of the cost of fully indexing public service pensions in the current financial year.

My Lords, I regret that figures are available only for the 12 months from the date of the pensions increase, and not by financial year. On this basis, the cost of the increase on 24th November will be about £367 million for the following year. I will publish in the Official Report a table listing separately the costs for each of the main public service pension schemes.

My Lords, is my noble friend aware that the Centre for Policy Studies believes that the true cost to the taxpayer of inflation-proofing pensions for the 3½ million people in the whole of the public sector—obviously, that is not just civil servants—may be as high as £2,000 million? Does my noble friend not think that this country cannot indefinitely afford fully to index pensions in the public sector, when so few industrial companies can possibly match those conditions without becoming uncompetitive?

My Lords, my noble friend will, of course, be aware that we have set up a committee under Sir Bernard Scott to look into the full cost of the indexing of public pensions and, more particularly, what should be paid towards them by public servants. As he said, there is a very broad category of armed forces, Civil Service, teachers, National Health Service, police, fire, local government and overseas pensioners involved. As to the figure of £2,000 million, that was, I think, the total cost of public service pensions up to November 1979. That was increased in November 1979 and, obviously, there will be an increase in November 1980. But that is not the cost of the increase; it is the total cost of the public service pensions.

My Lords, can the noble Lord estimate what might be the cost of indexing pensions, if there were a cut-off of pensions in excess of £10,000 a year?

My Lords, would the noble Lord agree that indexing is not adequately taken into account in comparability studies?

My Lords, this is what we have asked Sir Bernard Scott to advise us on. We are talking specifically about the contribution that is paid towards this by the Civil Service. It was, I think, gauged at 3·6 per cent. by the Government Actuary, and we have asked Sir Bernard Scott to advise us whether he and his committee agree that this is a proper figure or whether it ought to be changed.

My Lords, as the Leader of the House has indicated that he will be giving a fuller report—probably by Written Answer—in relation to various costs, will be consider letting us know what percentage of each wage bill the indexing of public service pensions represents in the current financial year? Would the Leader of the House also agree that the Government Actuary, who went into this very closely, has given a figure which has been taken fully into account by the Pay Research Unit, and that the indexing of pensions in the Civil Service has been fully paid for?

My Lords, paid for according to what the Government Actuary's figure was, which was taken into account by the Pay Research Unit. What Sir Bernard Scott will do is to make recommendations to us as to whether his committee thinks that this is the right figure.

My Lords, would my noble friend consider the policy for the future, because, as one understands it, Sir Bernard Scott will find out whether the formula is correct and accurate? If the adjustment is not 3·6 per cent., and is 5 or 6 per cent., would it not be worth the Government considering whether we should buy out of this by offering the Civil Service an extra percentage on their salary, and then asking them to accept exactly the same pensions as everyone else does in industry and in the wealth-creating sector? Is this not one formula which might commend itself, because something must be done to get the public sector borrowing requirement down, as the Government know only too well?

My Lords, all I can commit myself and my colleagues to today is that we will give full consideration to Sir Bernard Scott's report. Of course, my noble friend will realise that the figure for public service pensions is tied to the figure of increase for retirement pensions generally at present.

My Lords, would the Leader of the House also agree that if there is any buying out to be done, it will have to apply to Members of another place?

My Lords, in so far as Members of another place have index-linked pensions, that is so. I never talked about buying out.

My Lords, does the noble Lord indicate to us by that last answer that there is a suggestion of buying us out of your Lordships' House?

Following is the table referred to:

Public Service GroupCost of the November 1980 pensions increase in the following year
£ million
Armed Forces63
Civil Service75
National Health Services43
Police and Fire28
Local Government75
Overseas Pensioners16