You may have seen the ‘consultation’ running currently on whether to increase the cost of NHS pensions to employers by more than 6%, and wondered why – given that under a ‘defined benefit’ scheme this doesn’t increase anyone’s pension one penny – this is happening.
The usual argument is that it’s because the NHS pension scheme is unaffordable – that payments to current retirees will soon become too much for the scheme to bear.
It’s an argument which has been trotted out for many, many years, invariably with doomsaying about how the scheme will imminently switch into a massive deficit. Looking at how this is done is interesting.
In 2008, the Telegraph were reporting a “pensions black hole” of £165 billion. Then in 2011, the Office for Budget Responsibility claimed this back in 2011, saying that “by 2015-16 the NHS pension scheme will be in deficit by £1.2bn”. Come 2015, it still wasn’t, but that didn’t stop a millionaire city financier working for Boris Johnson claiming it was facing a £500 billion shortfall, termed a “cost to the taxpayer”. The charmless lobbyists at the Taxpayer’s Alliance were saying it was £390 billion the following year, in an article titled “NHS pensions are bleeding the taxpayer dry”
This ‘deficit’ figure is generally the aggregate total of the cost of all pensions, for all NHS employees, now and for the duration of their expected lives. That is, of course, enormous – the NHS is the 5th biggest employer worldwide, so it has a lot of pensioners – so it’s a great number to wave around while angrily talking about the huge liabilities of the scheme and its lack of any “assets”. The intention is to pretend that everyday taxpayers are paying for doctors’ pensions.
This is, of course, dishonest nonsense. When I pay into my NHS pension that money goes to the Treasury who then pay current pensioners out of that money and make up any shortfall. Historically, payments into the scheme have always been higher than payments out, and for years this was by billions of pounds.
The spate of articles talking about the scheme’s “deficit” have been matched by those suggesting that soon the scheme will start costing money: back in 2011, the Office of Budget Responsibility was predicting this would happen “within three years”. Even in 2017/2018, the scheme still provided £330m to the Treasury.
What, then, should happen next? Should employers’ contributions rise to cover the notional deficit? Personally, I’d prefer the value of those decades of surpluses from the scheme, running into the billions, to be uprated by CPI over time and set up as a notional ‘pot’. Then we can see how “unfunded” the scheme really is. Anyone fancy going through the accounts with me?