The Cabinet office weighs in as one of the cheapest departments. Its total spend for 2009-10 is an apparently modest £7,500,000,000. £360,000,000 of this is the administrative cost of the place, whilst the bulk, £7,140,000,000, is the civil service pensions bill.
The Cabinet Office employs 205 higher paid employees, and a total staff of 1279 (full time equivalents). It also accounts for the Intelligence Agencies, whose staff have shot up from 8,984 in 2003-4 to 12,633 for 2009-10. Their budget had doubled over the same time period. Let’s leave this on one side, and turn to the really big spending that goes on under the eyes of this department.
If the government had a proper balance sheet, it would show like the company sector the accumulated pension deficit as a liability. The civil service scheme is totally unfunded – there is no money saved to pay future pensions. Along with the other unfunded schemes (e.g. teachers), and the deficits in the funded public sector schemes(e.g. Councils), the total liability is now around £1,000,000,000,000 – yes, that’s right folks, £1 trillion, or more than the £800,000,000,000 of debt the state has acknowledged in the recent borrowing figures. That’s another £1 trillion on top of all that borrowing.
The private sector has long since decided it has no option but to cancel, limit or otherwise modify defined benefit (final salary based) pension schemes. We live in a world where for many access is denied to good final salary schemes these days. Even members of some final salary private sector schemes are finding they are blocked from saving more under them, and may have to agree to a reduction in benefits.The public sector has made far fewer moves to limit the costs. It is true the MPs funded and contributory scheme is now consulting members on how to worsen its terms to cut its future deficit, and there have been some modest moves to reduce costs on the unfunded civil service scheme.
The country cannot afford to go on making these generous promises to new comers. These schemes, like their private sector counterparts, have to be closed to new members. New employees need to be helped to save for a defined contribution scheme, where they will get a pension based on what they and their employer has saved and the investment returns made on the money.
We need to ask if we should go further. One option is to stop existing members accruing extra pension from future service on these terms, and whether they too need to go over to defined contribution saving for the remaining years. As the MP consultation shows, there are numerous ways in which the cost of such a scheme can be lowered. It would be right to consult members of these schemes and seek agreement to changes, based on more affordable levels of employer contribution.
One way to cut future costs would be to agree a higher retirement age. Another help would be to be more careful about granting early retirement, which has become common in parts of the public sector.