Police pensions are unaffordable

Updated: 

Riot policeDominic Lipinski/PA Wire/Press Association Images

At a cost of £2 billion a year, police pensions are unaffordable and need a complete overhaul, according to think tank, Policy Exchange. It suggests a change from final salary pensions and raising the retirement age to 60.

So what will the impact be?

Generous scheme

At the moment the police have what can only be described as a generous arrangement. They receive a final salary pension, and can retire as young as 48 on two thirds of their pension (as long as they have been in the force for 30 years). The average officer retirement age in 2010-11 was just 50.5 years.

In 2009-10 the average annual pension payment received by police officers in England and Wales was £15,600. This was higher, relative to all comparable groups in the public sector, and significantly more than the average amount received from private sector pension schemes.

Cost

The result is a massive cost, which is mushrooming. According to the report, costs are up 79% in the last 15 years. Nowadays £1 in every £7 that's spent on policing goes on pensions, and taxpayers are bearing more of the brunt of the costs than ever. In 2009-10 each household in England and Wales paid £612 per year for policing as a whole. Of this, £83 was spent on police officer pensions.

The report says the problem is that retired police officers are living longer, some officers are paying less into the scheme, and that over time the balance between those paying into the scheme and those drawing their pensions has switched, so the scheme is having to pay more out.

Changes

The Home Office is already in the process of making changes to police pensions. In the past Lord Hutton suggested moving from final salary schemes to career average schemes, and the report supports the move. The idea is that the payout is still guaranteed for life, but is based on a proportion of a career average salary rather than your final one.

The report authors also back Hutton's suggestion that the Normal Pension Age should be increased to 60 years. It argues that this is five years before the state pension age, and is therefore in line with the fact that police officers have a lower life expectancy.

There are those who argue that this is a nonsense, and that it's impossible to work in a front-line policing role, chasing after burglars at the age of 59. However, the report says: "The argument that officers cannot serve in a 'frontline role' up to 60 years ignores the scope for wider roles in the service (of which there are more than there used to be)."

It also argues that police offers should be contributing more to their pension. Theresa May has already announced that this will happen in the next few years, but it is calling for gradual increases over a number of years until the contributions more fairly reflect the benefits.

Complete reform

However, it further argues that the Coalition Government should develop a New Model Police Pension scheme that is more affordable for officers and taxpayers alike. Sadly it doesn't have a brilliant solution up its sleeve as to exactly what this pension should look like - just that it should be more generous than others in the public sector to reflect the nature of the job, without being unaffordable for either taxpayers or police officers.

Of course, the real question is how on earth you achieve all those things at the same time.

SPONSORED FINANCIAL CONTENT