Teachers, nurses and civil servants could be offered higher pay for lower pensions. The reform from the new Labour Party government which could affect the NHS, schools and Whitehall and could help avoid future strikes over wages, has been branded ‘dangerous’ by some unions.
It has the backing of Lord O’Donnell, the former cabinet secretary, who said it was a “win-win” reform that could save the exchequer 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 just this quirk of our accounting that stops it.” Lord O’Donnell said: “An economically literate chancellor like Rachel Reeves will understand that this is making the public finances more sustainable and is very much in the spirit of the changes to the fiscal rules in the budget.”
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Cat Little, the permanent secretary at the Cabinet Office, has said that she is reviewing “the balance between pay and pensions”, and has begun discussions within Whitehall about offering staff more flexibility. Sir Steve Webb, a former pensions minister and partner at the consultants LCP, said there was “certainly a debate to be had about whether we have the right balance for public sector workers between pay and pensions”.
Mr Webb warned that while such a trade might be theoretically cost-neutral , for the government it “simply brings forward costs. Because there is no money set aside now for the pensions of teachers, NHS workers or civil servants, any saving in pension costs would not happen until today’s workers retired, whereas the extra cost of higher wages would happen immediately.
“In general, governments prefer to push costs into the future rather than bring them forward, meaning this idea may not appeal to the Treasury”. A government spokesman said: “We are focused on supporting the civil service with the tools it needs to deliver change for working people.”