Prime Minister Theresa May has promised that the Home Secretary, Sajid Javid, is working closely with the police to understand the impact of the pension changes, after police chiefs threatened legal action against the government this week.
During Prime Minister’s Questions yesterday, 31 October, May said that Javid was working to understand how the changes, in order to make the right decisions to “support frontline services”.
Earlier this month, National Police Chief Counsel chair, Sara Thornton, said that the changes mean that forces in England and Wales may need to find an extra £417m by 2020/21, equivalent to 10,000 officers.
May said: “We are committed to public sector pensions that are fair to public workers but also fair to the taxpayer. It is important that the costs of those public sector pensions are understood and fully recognised by the government.
“The Budget has made it clear that £4.5bn is available next year to support public services in managing these increased pension costs, and my right hon. Friend the Home Secretary is working closely with the police to understand the impact of the pension changes and to ensure we make the right funding decisions to support frontline services.”
Despite this, Thornton said much of the agenda was “dominated by financial issues”, in particular, a recent Treasury announcement about changes to pension contributions.
The Police Pension Scheme operates on a pay-as-you-go basis, which means there is no fund of assets that are invested to pay pension benefits from.
Employer and employee contributions are paid to the sponsoring government department but these contributions are not invested. Instead, the sponsoring government department pays benefits to pensioner members, netting off the contributions received.
Following a review of public service pensions, Chief Secretary to the Treasury, Liz Truss, announced last month that the amount employers pay towards the schemes will need to increase.
Yesterday, Aon warned that a further reduction to the discount rate used for valuing benefits and setting employer contribution rates will “increase public sector pension costs”.
The discount rate will be reduced to 2.4 per cent plus Consumer Price Index (CPI) from 2.8 per cent plus CPI, which will lead to “significant cost increases for all employers”.