News / Pension payments rise ‘natural’, says NAO

Future payments from the NHS Pension Scheme are expected to exceed contributions, according to the National Audit Office.

In his report, The cost of public sector pensions, head of the NAO Amyas Morse said this was the ‘natural position’ for mature pension schemes in which employers and employees are charged at a level reflecting future pensions being earned.

The report said total pensions paid from the NHS scheme for England and Wales had risen by 36% to £4.2bn between 1999/2000 and 2008/09. The rise was greater than the increases in any of the other three major public sector pay-as-you-go pension schemes – for teachers, civil servants and the armed forces. The NHS scheme is the largest of the four and overall pensions payments rose by 26% over the period.

The increase in NHS payments had been fuelled by retirements, which had been higher each year since 1999/2000 than in any of the other major schemes.

However, the rising number of employees in the NHS scheme – and the subsequent increase in employer contributions – had more than balanced this.

Membership of the scheme had increased from 1 million in March 2000 to 1.4 million in March 2009. Over the period, employees’ contributions had risen from £1.48bn to £2.55bn.

Mr Morse said: ‘Recent employer contributions to the NHS scheme, unlike the situation in the

other schemes, have been more than sufficient to cover current pension payments, so the scheme has returned surplus cash to the Treasury.

‘This has occurred because increasing staff numbers have generated higher total employer contributions, leading to the current net cash surplus but giving rise to higher future pension obligations.’

He added that NHS pension payments are expected to increase from 25% of all public sector pensions in 2009/10 to 35% by 2059/60.

A second report is expected from the NAO later this year, which will draw out conclusions on overall value for money and make recommendations.