The House of Lords has added an amendment to the pension schemes bill that would require the government to review the affordability and fiscal sustainability of unfunded public sector schemes. Union Prospect is now lobbying MPs to overturn the amendment.

Any changes flowing from a review of public service pensions would break a government promise of ‘no change for 25 years’, the union which represents more than 28,000 public sector workers has said. 

Prospect said the amendment by Baroness Lucy Neville-Rolfe, voted in by Conservative and Liberal Democrat peers on 23 March, “breaks promises about public service pension reform and threatens the future of these schemes”. 

In 2011, the former coalition government’s chief secretary to the Treasury Danny Alexander said public sector pension reforms – a switch to career average, a higher retirement age and higher contributions – were “a sustainable deal, that will endure for at least 25 years”. The current government interprets this as making no major reforms until 2040, as the changes were implemented in 2015 for most schemes. 

The union said a review “may seem innocuous”. However, it believes reporting by the Telegraph that 'Gold-plated public sector pensions could be reduced as early as next year after peers demanded a review into their fairness to taxpayers' “gave the real game away”. 

There is “widespread misunderstanding of, and hostility to” unfunded public sector schemes in the Lords, Prospect said.

The lobbying campaign comes after a debate in which some peers argued that taxpayers may not accept indefinitely that they help fund generous defined benefit pensions that cannot be afforded in the private sector.  

Baroness Neville-Rolfe, who had tabled the amendment, stated that liabilities were “probably growing” because of the expansion of public sector payroll. Even if no new pension commitments were made, existing payments would keep rising until the early 2060s, she said, potentially reaching £130bn a year.  

“I want ministers to grip the problem, and to do so with an open mind,” she said. 

Department for Work and Pensions minister Baroness Maeve Sherlock replied to the call for a review pointing to projections by the Office for Budget Responsibility that the cost of public service pensions will fall, and to Lord Hutton’s review that led to the 2013 legislation changing public sector pensions. 

She added that these reforms are expected to save £400bn over 50 years and have only been fully bedding in since April 2022. This was when unlawful protections for older workers stopped after the McCloud and Sargeant legal challenge. 

Prospect also cited the OBR's prediction that the cost of unfunded pensions will fall. The independent forecaster's projections suggest the cost of public service pensions will reduce to 1.4% of GDP in 2073-74, from 1.9% of GDP in 2023-24.

These figures rely on an assumption that earnings-related contributions rise more quickly than the consumer price index. The OBR remarked that “if these assumptions hold, then these schemes do not pose a significant fiscal risk in themselves, but they do make up a significant share of the government’s overall liabilities which are projected to continue to rise over the next 50 years”. 

The bill returns to the House of Commons on 15 April.