Public service pension schemes

Public service pension schemes (PSPS), like the local government and NHS schemes, are the part of the workplace pension system that is best delivering decent retirement incomes.  

Most public service pensions are modest but they are needed. When combined with state pension entitlement they can produce an adequate retirement income. The average pension in the local government pension scheme (LGPS) is around £6,000 a year. Of the 1 million NHS pensioners, around half get less than £5,000 a year. Public service pensions are hardly ‘gold-plated’ but they do what all workplace pensions are supposed to do – provide a secure wage in retirement in return for workers’ deferring some of their pay during their working life.  

They are affordable for the long term

The LGPS is a funded scheme. The funds are performing well, and they help reduce the employer contribution costs.

In the NHS scheme, contributions made by today’s workers pay the pension benefits of today’s NHS pensioners. This is wholly sustainable. The NHS is a going concern and this flow of resources can continue indefinitely as long as future workers are able to join, pay contributions and build entitlements in the NHS pension scheme.

The government’s Office for Budget Responsibility reported that the cost of public sector pension benefits is set to fall from 1.9% to 1.4% of Gross Domestic Product (GDP) – which measures the value of all goods and services – over future decades.

In the NHSPS, the amount taken in contributions (employee and employer) was higher than the amount paid in benefits in 2024/5 by £6.3bn. It may be possible for employer contributions to be reduced in both the local government and NHS schemes after the current round of valuations.  

Pension problems outside the PSPSs

Many workers outside the PSPSs are in inferior, savings-based defined contribution (DC) arrangements. Instead of being linked to employment, the retirement income depends on the value of an individual’s savings. Workers bear all the risks of inadequate investment returns, inflation, running out of money in old age, and not being able to buy a good regular income. Some employers only pay the statutory minimum of 3% into workers’ pensions. There are concerns that these arrangements are inadequate, leading to fears of a potential pensions ‘timebomb’ and that workers are ‘sleepwalking’ into a crisis. 

UNISON is pressing for urgent improvements to inadequate workplace pension provision outside the PSPSs. Inadequate workplace pensions should be the focus of public policy.  

Be wary of politicians who attack PSPSs

Reform UK has indicated that it wants to put new starters in public services into savings-based DC arrangements. This would destroy the PSPSs over time. This type of proposal is not new: other parties have attacked PSPSs from opposition in previous decades, for example, David Cameron in 2008.  

When you hear these attacks from politicians, please keep in mind that the proposals are completely unnecessary – PSPSs are sustainable. Their proposals would be extremely damaging to public service workers’ retirement incomes and to the ability of public services to recruit and retain staff.