Public Sector Pensions (Hansard, 19 October 1982)

§ Mr. Hayhoe:

The Pension (Increase) Act 1971, as amended, provides for annual increases in line with increases in the general level of prices, for pensions payable under the schemes listed in schedule 2 to that Act. The largest such schemes are the principal Civil Service pension scheme, the local government superannuation scheme, the teachers' superannuation scheme, the National Health Service superannuation scheme, the police pension scheme, and the fire service pension scheme. The Armed Forces pension scheme follows these arrangements by analogy. Other schemes covered directly by the Act include the parliamentary contributory pension scheme, pensions payable under the Judicial Pensions (Consolidation) Act 1981, and those payable to former holders of certain public offices such as the Parliamentary Commissioner for Administration and the Comptroller and Auditor General. A wide variety of pensions paid to former overseas officers, such as the expatriate staff who served colonial Governments, are also increased under the Act.

The financing arrangements for the main schemes in Great Britain covered by the Act—including, for these purposes, the Armed Forces Pension Scheme—are as follows:

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	Employee Contributions (incl. pay reductions)	Employer Contributions‡	Source of benefits
Scheme	per cent of pay	Estimated re-venue (or savings) in 1982–83 £m	per cent of pay	Estimated re-venue in1982–83 £m	Basic pensions‡	Pensions in-crease
NHS	5 (manuals)6 (non-manuals)	350	7.5	425	Notional funds	Exchequer
Police^*	11(men) 8(women)	100	n/a	n/a	Police authorities	Police authorities
Fire^*	6.75 ¶	20	n/a	n/a	Fire authorities	Fire authorities
Armed Forces^*	See note†	(260) †	n/a	n/a	Exchequer	Exchequer

Notes:

^*Most of the pensions in this table are subject to a maximum of 2/3 final pay (or the broad equivalent in pension and lump sum) after 40 years' service, from age 60 or 65. However, the arrangements for the police and fire services, the Armed Forces, prison officers (within the Civil Service scheme) and mental health officers (within the NHS scheme) provide for pensions from earlier retirement ages and accrual of full pension over a period of less than 40 years. The value of such arrangements as a percentage of salary is considerably greater, and at the present time is reflected in higher effective employee contributions for the Armed Forces and the police.

† Civil Service and Armed Forces pensions are largely non-contributory and it is therefore necessary to incorporate pension deductions into gross pay levels. For the Civil Service, the most recent adjustment was in 1980 pay research, which resulted in an average total effective contribution of 7.9 per cent of Civil Service pay, including the 1½ per cent. paid by men for widows' benefits. For the Armed Forces, the last two sets of recommendations by the Review Body on Armed Forces Pay have included reductions of 11 per cent. in pay rates to take account of pension benefits.

‡The employer contributions listed are those payable to actual or notional pension funds; for the wholly unfunded schemes, no employer contributions as such are paid. However, the NHS and teachers' notional funds and the local authority pension funds cover basic pensions only (that is, without increases under the Act) and pensions increases are financed separately. Thus, the contributions shown do not cover the liability for pensions increase. This liability falls on the source shown in the final column of the table. The Government Actuary estimates that if pensions increases were taken into account in the funds the employer contributions might be some 6 per cent. higher.

Pensions under the local authority superannuation scheme are paid from pension funds maintained by county councils, the GLC, the City of London, London boroughs and Scottish regional authorities. The employer contributions vary from fund to fund, and average 8½ per cent.

¶ Revised rates under consideration.

The numbers covered by these schemes are as follows:

Thousands
Service	Number of employees	Members of pension scheme	Retired employees	Number of pensioners Dependants	Total
Civil Service	659	657	323	101	424
Local government	2,054	1,060	286	66	352
Teachers	658	613	201	11	212
NHS	1,179	820	202	35	237
Police	133	133	51	24	75
Fire	39	39	18	7	25
Armed Forces	328	321	224	60	284
Overseas	—	—	46	9	55
Total	5,050	3,643	1,351	313	1,664

Estimated expenditure in the 1982–83 financial year, and the average pension before and after the 11 per cent. increase due on 22 November 1982, is as follows:

					Average pension £ a week
Service	Lump sum	Basic pensions	Pensions increase	Total,	pre-Nov. 1982	post-Nov. 1982
	£ million	£ million	£ million	£ million
Civil Service	300	403	354	1,057	32.40	35.80
Local government	175	325	240	740	29.70	32.70
Teachers	219	333	373	925	56.10	61.90
NHS	174	220	228	622	32.10	35.40
Police	44	80	107	231	46.00	50.80
Fire	9	20	29	58	36.00	39.80
Armed Forces	130	244	289	663	34.60	38.30
Overseas	1	20	103	124	41.80	46.70
Total	1,052	1,645	1,723	4,420	36.20	39.90

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Information is available about the distribution of Civil Service, teachers and NHS pensions by size (before taking account of the increase due in November 1982):

Size of pension £ a year	Civil Service	Teachers	NHS
0— 999	49.7	9.1	52.1
1,000–1,999	23.3	16.9	21.7
2,000–3,999	16.5	44.8	16.2
4,000–5,999	6.4	24.7	4.6
6,000–7,999	2.3	3.9	2.2
8,000–9,999	1.1	0.5	1.7
10,000 or more	0.7	0.1	1.5
Total	100.0	100.0	100.0

Scheme	Scheme members 000	Pensioners (including dependants) 000	Employee contributions per cent	Employer contributions per cent	Expenditure on benefits in 1980–81 £ million
A:schemes whose rules require them to follow the 1971 Act
Post Office/British
Telecom	400	180	6	9	571
British Rail	217	64	9⅓	14	40(in 1979)
British Steel	128	101	8 (staff) 5¼ (manual)	16	127
British Airways	47	15	5¾-7 (women) 7¼-8½ (men)	12.65–25.5	46
Atomic Energy Authority	35	7.5	4¼-7½	10-12½	18
London Transport	50	14	5 (manual) 6 (staff)	13¼ (manual) 18.9 (staff)
Universities	58	38	6¼	14	52.5
National Bus Company	36	5	2½ (manual) 7½ (staff)	7½ (manual) 22½ (staff)	6
Civil Aviation Authority	7.4	1.6	7½	25	8.7
B: schemes which provide index-linking by other meansNational Coal Board:
Miners	240	255	5 ¼	5 ¼	130
Staff	59	50	4½-5½	10-12	85
British Airports Authority	7.5	1.2	6-7	11¾-12¾	2.9
C: schemes which have in practice followed the 1971 Act
Electricity Supply	143	66	6	12	133
British Gas	93	39	6	15.2 (manual) 29.12 (staff)	65
BBC	21.5	7	7½	¼	21
Other schemes, covered directly by 1971 Act
Water Industry	56	11	As for local government		27.5
Forestry Commission	8	4.7	As for Civil Service		7.1
Total	1,606	860			1,362

With the exceptions of the National Water Council pension fund (which has adopted the local government scheme) and the Forestry Commission, which has an unfunded scheme, all the above schemes pay pensions increases from their funds, so that the liabilities met by contributions include this element.

The foregoing schemes cover in all some 5 ¼ million scheme members and nearly 2 ½ million pensioners, and are expected to spend up to £6 billion on benefits in the current financial year. This list is not however exhaustive, since there are a great many smaller schemes in the public sector which also provide index-linked pensions. The latest survey of occupational pension schemes by the Government Actuary in 1979 found 130 public sector pension schemes, with 5.6 million members and 2.3 million pensioners. Later figures are not available, but the number of pensioners has certainly increased since 1979.

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The Pensions (Increase) Act does not in general apply to pension schemes in the wider public sector, such as the Nationalised Industries. Most of these schemes do, however, provide for regular increases in line with movements in prices. These schemes fall into three groups:

A. those whose rules provide annual increases in line with those under the Act;
B. those which provide full index-linking, but related to actual movements in the Retail Price Index rather than, as with increases under the Act, forecast movements; and
C. those whose schemes do not provide explicitly for inflation-proofing, but who have in practice followed the increases made under the Act.

About two-thirds of nationalised industry employees belong to the first group, and are thus subject to the same pensions increase arrangements as members of the schemes discussed above. The following table describes the main pension schemes in the wider public sector, within these three groups, as they were in 1980–81 (the latest year for which the full range of information is centrally available).

The Government Actuary's survey found 11.8 million members of occupational pension schemes, 10.3 million of which were in schemes contracted-out of the earnings-related, index-linked, additional element of the State pension scheme. This figure of 11.8 million represents about 51 per cent. of employees in the United Kingdom, 24 per cent. in the public sector and 27 per cent. in the private sector. There are also about 9 million people in receipt of State retirement pensions. These pensions, and guaranteed minimum pensions, to which the 10.3 million members of contracted-out schemes will be entitled, are fully increased in line with increases in the general level of prices, as provided for in the Social Security Acts, About 3.7 million people were in receipt of pensions from occupational pension schemes (although not all would yet have reached State pension age, so that this figure is not 87W comparable with that of 9 million retirement pensioners). Of these 3.7 million, 62 per cent. come from public sector schemes and 38 per cent. from private sector schemes.

The potential beneficiaries of public sector pension schemes are not confined to contributing scheme members. There are an estimated 800,000 people who have left public sector schemes before retirement age with preserved benefits which will become payable in due course. In addition, many wives of scheme members and pensioners may become entitled to widows' pensions in the future.