Altmann: Treasury could save £6.6bn a year by ending contracting-out

It is not quite clear from this report whether the figures mentioned relate to all public sector workers or just those employed in the public sector with unfunded pensions.

It would clearly be unfair, for example, to end contracting-out for Local Government employees where they are members of funded schemes, as this would be treating them differently to people in private sector funded schemes.

I do, however, entirely agree that anyone in the public sector who is a member of an unfunded final salary scheme should have contracting-out ended as soon as possible, i.e. from April 2011; otherwise it is just another hidden cost to the rest of us taxpayers of public sector pensions.

Once again Ros Altmann is right.

It might be a politically sensitive issue with the public sector under attack on various fronts, but having members pay lower NI and then have the Treasury later foot the bill for member's NI savings is unfair and unsustainable.

I agree that in the short term the tax take would increase, and am not in a position to query the maths, but the accrual rates would need to be looked at too. Also, in the longer term, those newly contracted in employees would be building up extra State Pension entitlement.

I fully appreciate that this issue is far more complicated than expressed here, but surely we have to look to cap unfunded long term public sector promises.

We will all be better off with our pension funds if the chancellor stops thieving over £6BILLION PER YEAR FROM OUR PENSION FUNDS, the funny think about that we don't really see it as head line do we???

Not a lot of people are aware of that...so come on your journalists make it known lets stop this now or we will not have any pensions funds in the future.

I believe they have been taking this lot of money for 10 years, that's 60billion pounds Mega money...What I would call LEGAL MAFIA

Whilst this may be the case in the short term I think we need to recognise that many public sector workers in both funded and unfunded schemes do not enjoy high salaries. Given the intention to move S2P to a flat rate scheme designed to benefit the lower paid the eventual cost of contracting all such workers back into S2P may turn out to be considerably higher than the superficially attractive "Jam today" NI savings.

Whilst I have the utmost respect for Ros Altman, it seems a little simplistic to me to arrive at this conclusion based merely on the payment of additional NI contributions.

Firstly, isn't the Treasury ultimately the Public Sector employer? It seems to me that if employer NI contributions are increased, then ultimately the Treasury is paying them and is merely clawing back part of the budget that it has given to each of its Government Departments. If these Departments can include the extra Employer NI payments as part of the 40% savings that they all have to make, then they will probably be happy to pay up. If not, then obviously additional services will need to be cut.

Additionally, whilst the additional employee NI contributions will be a saving, if contracting-out is stopped then all public service employees will become contracted-in and this will increase the Government's future S2P liabilities. The article doesn't really make it clear if this is taken into account in arriving at the headline figure.

Peter - totally agree with your comments, the idea sounds great in principle, but as with all pension matters the devil is in the detail and frequently changing one aspect has unintended knock on effects elsewhere.

This is a useful contribution to the debate on public sector pensions. But, I'm sorry to say this Ros, your maths are wrong. There can be no doubt that any employer with a funded Contracted Out Salary related (DB) scheme is subsidising the Treasury. Contracting Out is poor value for money but DB schemes are locked into it, unless future accrual to DB benefits are reduced or discontinued.

The short term position for unfunded schemes may be different in that the Treasury would receive more NI contributions if schemes become Contracted In. However any such short term benefit would be reduced if future accrual and therefore employee contribution rates are reduced to compensate. And in the longer term the cost of total benefits (DB plus S2P) would increase by far more than the short term saving.

Consequently any move to Contracted In for DB schemes generally would ultimately see increased costs to the Treasury, not savings.

Well let's just hang on a minute.

Cast your minds back to 1978 when SERPS started as a replacement for the dead and buried (since 1975) Graduated Pension Scheme.

The super-duper new government (Barbara Castle's pet project) top up pension scheme was left in its entirety the day it opened by the government itself.

That was not much of a recommendation then, was it?

So if we need to save the cash in this area, the solution is simple:

1/ Reduce all civil service pay to NMW

2/ Scrap the final salary pension and replace it with a stakeholder personal pension with no employer contribution

Sorted!

Irrepairably sorted, admittedly. But sorted, nonetheless.

I might be missing something here, but surely if someone has contracted out, they have either a reduced or no entitlement to S2P, depending on whether they had been paying into the scheme ,as well as their public sector pension, before contracting out? It looks a bit like swings and roundabouts with the individual paying less in NI but receiving less or nothing in S2P. I have been in a public sector scheme for 35 years and paid into SERPS from its inception until I had to contract out in the 1980s. But my State Pension forecast indicates that the annual amount I shall receive in SERPS/S2P would hardly feed my dog for a week!