Planned increases to the employer contributions of the Police Pension Scheme could lead to 10,000 fewer officers in the force from 2020/21, it has been warned.
In a blog post, National Police Chief Counsel chair, Sara Thornton, discussed the most recent gathering of the Chief Constables’ Council in Cardiff that took place earlier this week.
Thornton said much of the agenda was “dominated by financial issues”, in particular a recent Treasury announcement about changes to pension contributions. She said the changes mean that forces in England and Wales may need to find an extra £417m by 2020/21.
“This is equivalent to nearly 10,000 officers and grave concern was expressed about further reducing the sustainability of local police forces. This matter has been raised with the government and discussions are being held,” she stated.
Thornton highlighted the “general concern” about the strain that police forces are currently under and the impact on core policing such as answering emergency call, investigating crime and neighbourhood policing.
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.
“This is because of proposed changes to the discount rate, which is used to assess the current cost of future payments from the schemes, to reflect the Office for Budget Responsibility’s long-term growth forecasts.
“Some increase in costs was anticipated at Budget 2016, which departments and the devolved administrations will need to meet in full. The Treasury will be supporting departments with any unforeseen costs for 2019-20. Further discussions will be taken forward as part of the spending review,” she said.
Known as the Scape rate, the discount rate is based on the OBR’s long-term projections of GDP growth. Budget 2016 announced a reduction in the annual rate from 3 per cent above the Consumer Prices Index (CPI) to 2.8 per cent above CPI. The Treasury has now proposed a further reduction, to take effect from April 2019, to 2.4 per cent above CPI. This figure that will be confirmed in due course and formally announced at a later date.
The NPCC said the Home Office has signalled that forces will need to budget for costs, which they value at circa £165m, in 2019/20, and potentially £417m in 2020/21. The NPCC said the impact will be variable across the service and with regard to a number of forces the increase in pension costs will exceed the increase in precept income – the amount of police funding raised through council tax.
“In so doing such a change would fracture the two-year funding settlement and place enormous pressure on force budgets requiring a major change in financial plans, officer recruitment and the ability to respond to the increasing demands on the service. A spending pressure of this magnitude would absorb 60 per cent of a £12 increase in precept across forces in England and Wales. This could mean around 4,000 less officers next year and ultimately 10,000 less from 2020/21 if it went ahead,” a NPCC spokesperson said.
NPCC have written to the Treasury challenging this proposal and are working with a Home Office on the technical detail.