FactCheck: Are police pensions unaffordable?
The claim
“We desperately need a new police pension scheme fit for the modern world. Without reducing costs, police officer pensions will become unaffordable for taxpayers and for officers themselves.”
Edward Boyd, Policy Exchange, 01 March 2012
The background
The right-of-centre think-tank Policy Exchange weighed in to the ongoing row over public sector pensions this week.
This time it was the police pension scheme that came under scrutiny.
Officers are waiting anxiously to see what kind of offer ministers are going to put on the table following the imminent publication of the second Winsor report into police pay and conditions.
As Crown servants, the boys and girls in blue can’t go on strike, but that doesn’t mean they won’t be as angry as other state workers if the government tries to cut back their pension entitlements, particularly as reforms in 2006 already diminished the generosity of the payouts officers can expect to get when they retire.
Policy Exchange made the case for reform, however, saying that the annual cost of taxpayer contributions to police pensions has doubled, rising from £951m in 1995/96 to £1.9bn in 2009/10.
Does that mean the country will soon be unable to afford police pensions?
The analysis
There’s little dispute that the taxpayer is footing a hefty bill for retired officers at the moment, but does that mean the cost will inevitably continue to spiral?
Pensions expert John Ralfe, who helped us FactCheck NHS pension reform last month, says we may be in danger of underestimating the effect of the 2006 changes to the police scheme.
Policy Exchange believe that members who joined before 2006 receive benefits worth about 35 per cent of their annual salary, paid for by the taxpayer.
That fell to about 29 per cent of salary after the reforms in 2006, according to their research.
Mr Ralfe, an independent pensions consultant and the former head of corporate finance at Boots, disputes the figures that those numbers are based on (they emanate from the Pensions Policy Institute).
He thinks the real pre-2006 cost to the taxpayer was much higher – about 51 per cent of a police officer’s annual salary.
That’s because the earlier pension scheme offered an outstandingly generous maximum pension of two-thirds of final salary. Officers could also retire as early as 48-and-a-half.
The cost fell dramatically after 2006 from 51 per cent to 32 per cent of salary, reflecting big cuts in generosity. The maximum pension is now half of final salary, plus a lump sum of four times final salary. The new minimum retirement age is 55.
According to Mr Ralfe, that means that police pensions used to cost the taxpayer about twice as much as schemes for teachers, local government workers and some NHS staff.
Now that margin has been already been cut and police pensions only cost the state about 25 per cent more than those of other public sector workers.
Of course the government could argue that’s still too much, but they would have to persuade the public that police officers – with all the physical demands, risk and responsibility their job entails – don’t deserve to have slightly more money spent on them.
The verdict
Policy Exchange say 91 per cent of today’s officers are still enrolled in the pre-2006 scheme, and it will obviously take years for the cost to the taxpayer begins to fall significantly as the new scheme becomes the norm.
That means some officers will still be claiming two-thirds of salary and retiring before 50 until 2036. If the government wants to cut costs in the short term, it may follow the think-tank’s advice and announce an immediate redesign of police pensions.
But if Mr Ralfe is right that the current cost to the taxpayer of police pensions is only 25 per cent more than other public sector schemes, it may be difficult for ministers to argue that the thin blue line doesn’t deserve a slightly more expensive deal.
By Patrick Worrall
[Update: After we published this blog, Policy Exchange gave us this statement: "Mr. Ralfe’s comments relate to ‘relative generosity’ not how ‘affordable’ pensions are. We looked at how 'affordable’ pensions were for both taxpayers and officers. Taxpayers are spending £1 in every £7 we spend on policing in England & Wales, just on police officer pensions. Last year taxpayers spent £1.9 billion on police officer pensions, a 79 per cent increase above inflation over 15 years. This is set to increase up to 2036 as officer numbers (and therefore employee contributions) are due to decrease and life expectancy is due to increase. Under current proposals officers are going to be asked to contribute up to 15 per cent of their pay. We are not convinced that this is affordable for them. This is why we argue for fundamental reform that will reduce the amount officers put in and the amount they take out. This can still be done whilst maintaining a 'relatively generous' final pension and will make it more affordable for both officers and taxpayers.]
There are 7 comments on this post
Policy Exchange are pursuing a political agenda hardly surprising as they are heavily linked to the Conservative Party.
No mention that police officers currently pay 11% contributions of their pay every month to their pension scheme, rising to over 12% in April 2012. This is more than anyone else in the so called public sector.
All changes to recent police pension schemes have been completed and agreed under Conservative Governments namely the 1987 and 1996 schemes.
Like or Dislike:
0 
0
Cathy/Patrick,
Liked the “right of centre” bit.
Policy Exchange are as far right as the Adam Smith “Institute” and just as loony. Which automatically means they would steal the bread out of the mouths of you and your family if they had the chance.
Now, like all the other neocon crackpots, they help lead an attack on collective public provision of pensions. The aim of course is to eliminate any semblance of co-operative action and organisation in favour of profiteering corporations and individuals. Small wonder they now seek to steal old age and make money from it.
You’ll find they and their ilk perform similar actions in all other fields. Lest we forget, this is the same squadron of loonies who recommended abandonment of areas and cities in the country who didn’t go along with the PE view of how an economy should be run. And lo! recent release of cabinet papers show the Tory cabinet tried to do just that with Liverpool in the 80s until they met sufficient resistance – but of course they still inflicted their policy of deindustrialising the country anyway.
That’s the kind of people you are dealing with here, the same kind of mindset that produced Nazi…
Like or Dislike:
0 
0
Police pensions are not “funded” by the “tax payer”, they are payed for by the Treasury which can never run out of money. So with “affordability” no longer relevant, the only remaining argument is what pension arrangements do us voters (not tax payers) think the police deserve for the difficult job that they do.
Like or Dislike:
0 
0
Er, I don’t know about a fact check, but how about a reality check?
The Treasury can never run out of money? How on earth do you work that out. That is exactly what has happened, which is why the country is in debt.
The Treasury doesn’t have it’s own money, only taxpayer’s money, therefore if the Treasury funds police pensions, then the taxpayer funds police pensions.
Like or Dislike:
0 
0
Cathy/Patrick,
Just read Policy Exchange’s “update.”
Same old weasel words from the same old weasel mouths, couched, as usual, in lying quasi-economic language.
With these people, always be on the lookout for two-faced words such as “fundamental reforms.” Which really means “cuts” or “hand everything to our public school chums in insurance corporations.”
Police pensions are well affordable in their current form, as are all public servant pensions. And honest policemen and public servants earn every penny of them.
Those who were stupid enough to fall for the Tory, Lib Dem and New Labour scam of the new form of privatised pensions have suffered accordingly.
The REAL question isn’t one of “unaffordable” public pensions, but why private pensions have fallen behind so badly. We also need to to expose neocon-manufactured envy of public pensions, in many ways the worst hypocrisy of all.
Organisations like Policy Exchange stink the place out.
Like or Dislike:
0 
0
same old same old tories. they are determined to cut everything that benefits ordinary people (that includes police) whilst at the same time syphoning off public money (ie, the taxes we pay) to their rich cronies in the private sector. WE lose pensions, THEY privatise companies, THEY then pay US less money in wages to work for them so THEY and their shareholders can keep more, and WE keep paying our taxes so THEY can drain more out of us and the economy. where does it end? will it ever end? it is so unfair.
Like or Dislike:
0 
0
DRAW ATTENTION TO PENSIONERS ALREADY RETIRED WHO DO NOT GET MORG PAID ABOVE 100K AS MORGS ARE UNDERPAID AT A STANDARD RATE OF TWO POINT NINETY NINE PER CENT REGARDLESS ,IF YOUR MORG IS FIXED AS MINE IS AT SIX PER CENT AND YOU CANNOT SELL OR TRANSFER IT YOU ARE A MORG PRISONER STARVING AND BORROWING FROM FAMILY TO EAT AND HEAT THIS IS A SCandal to treat over sixties so heartlessly .David Freud the minister replied saying prepare for homelessness To have to pay £450 out of £550 and have £100 for food, heating , etc is scandalous making this family allowance fuss frivoulous riches to thousands like me who have paid for tha welfare state all our lives yet the young and fit make this fuss!
Like or Dislike:
0 
0