UK could increase civil service pay through cutting pension contributions
The UK government is examining increasing pay for civil servants and others working in public services through lowering pension contributions.
According to reports, the government is exploring the potential to offer civil servants higher pay in exchange for reduced pension contributions. Public service pensions across the UK are mostly defined benefit schemes, with employers making higher pension contributions as a result, compared to many private sector schemes that are defined contributions.
However, these higher contributions are often contrasted with public sector pay levels. Former UK cabinet secretary Lord Gus O’Donnell, who led the work on Global Government Forum’s Making Government Work report, has argued that “we desperately need a switch towards more pay less pension in the public sector”, highlighting that “you can’t get a mortgage based on your future pension”.
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Cat Little, the permanent secretary at the Cabinet Office, told Global Government Forum’s Public Service Data Live conference in September that the civil service faces “a whole set of issues around pay”, and it has now been reported that she is reviewing “the balance between pay and pensions”, and has begun conversations within Whitehall.
The Times reports that discussions are underway about offering staff more flexibility, with the aim of reducing pension contributions to transfer money to pay packets.
In particular, civil servants are looking at ways to allow public sector workers to take higher pay at a time in their lives when they may be seeking to buy a house or look after children, in exchange for a lower income in retirement.
However, no decisions have been made by ministers, according to the report, and the Treasury, the UK’s public spending department, has not yet been consulted on the plan.
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Ex-cabinet secretary flags potential ‘win-win’ reform
O’Donnell said that the changes could amount to a “win-win” reform that could also save the government money.
“If you increase a civil servant’s pay by £1,000 you could reduce the net present value of their pension by more than £1,000, which makes debt more sustainable – but would also be a trade-off that makes sense to the civil servant because having that money upfront will mean a bank gives them a mortgage,” he said.
“It’s a win-win but it’s just this quirk of our accounting that stops it happening.”
About Richard Johnstone
Richard Johnstone is the executive editor of Global Government Forum, where he helps to produce editorial analysis and insight for the title’s audience of public servants around the world. Before joining GGF, he spent nearly five years at UK-based title Civil Service World, latterly as acting editor, and has worked in public policy journalism throughout his career.
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