The Public Accounts Committee has issued a scathing report highlighting HM Treasury’s failure to predict the numerous problems stemming from 2011-15 public sector reforms, warning its mistakes will take “generations” to resolve.
The report criticised not only the Treasury’s failure to foresee the consequences of the reforms, but also its handling of the mistakes once they had become apparent, criticising its response to the McCloud remedy and its plan for affected scheme members to foot the bill for “its own mistake — a mistake which could have been avoided by listening to advice and which will take many decades to resolve”.
The committee saw “evidence of public service pensions issues affecting delivery of frontline services, and independent schools opting out of pension schemes because of increasing costs”, while the Treasury still lacked the data required to properly evaluate the impact of its reforms, or judge whether they were meeting policy objectives.
It further warned that the Treasury seemed “unconcerned about the drop in enrolment by some workers”, and saw “a danger of a perfect storm where some young people believe they cannot afford pension contributions because of high costs of living and retire with a reduced public sector pension as a result”.
Meg Hillier MP, chairwoman of the Public Accounts Committee, said: “The Treasury’s £17bn mistake on pensions reform is a ripple compared to the tsunami of costs to the public purse if government fails to address the growing number of young people unable to afford to plan for a proper pension.
“Its lack of curiosity about why nearly a quarter of a million workers are not joining these pension schemes is a concern. Pension planning must be long term; mistakes and poor planning have an impact for decades.
“Short-term cost savings can become long-term costs to individuals with lower retirement incomes and the taxpayer who may end up supporting them.”
The Treasury has been approached for comment.
A litany of failings
In its report, the PAC accused the Treasury of failing to balance the need to make public sector pensions affordable to the taxpayer with its other policy objectives, such as ensuring public sector workers have a decent income in retirement, and ensuring pensions play a role in recruitment and retention of staff.
Failure to properly account for the last of these has hit healthcare and education schemes and workers, it said. For example, increases to employers’ pension contributions in 2019-20, that were not fully funded by the Treasury, hurt employer budgets.
Around 200 independent schools are now looking to withdraw from the Teachers’ Pension Scheme over concerns about increasing contributions, and the committee warned that more may follow.
“There is also evidence that pensions can affect staff choices about their work, which impacts frontline services. For example, the interaction between the NHS Pension Scheme rules and the tax system means a large number of doctors have reduced their working hours, opted out of the scheme, or retired early,” it added.