Public pensions to be privatised

The Government is set to privatise the administration of virtually all its public sector pension schemes, involving more than 3 million members and notional funds worth at least £10bn, in a move aimed at saving up to £50m a year.

Private companies are to be invited to bid for the work of running a range of schemes, including the NHS, large parts of the civil service and teaching.

The pensions shake-up means setting up massive private agencies - the largest existing private sector pension scheme is five times smaller than the teachers' agency, which covers 1.1 million members.

Firms would be allowed to move into other profit-making activities, such as pay-roll functions for other groups of workers.

A report by KPMG Peat Marwick, acting as consultants to the Government in the privatisation of the £4bn teachers' scheme, concluded: "These opportunities should make the TPA an attractive commercial proposition for a private sector contractor."

Hundreds of staff running the schemes could lose their jobs. About half the 400 people employed by the NHS Pensions Agency, in Fleetwood, Lancashire, have already applied for voluntary redundancy, according to the British Medical Association.

The Government's plans come amid continuing furore over the personal pensions scandal. Up to 1.5 million people, many of them public sector workers, may have been wrongly advised to opt out of their workplace pension schemes. The bill to compensate them could top £3bn.

The proposals were attacked yesterday as further evidence of government "sleaze" by unions and Labour politicians.

John McReadie, national pensions officer of the civil service union CPSA, said: "They appear to be giving yet another multi-million pound handout to their friends in the private sector."

Alastair Darling, Labour's City spokesman, said: "After all the problems involved over the pension transfer scandal, the Government should be very careful about causing further disruption in this area."

A spokesman for the Association of Teachers and Lecturers said: "We are very concerned. Some 28,000 teachers were encouraged to opt out of their very generous workplace scheme.

"I would hardly have thought that it makes sense to create more uncertainty among teachers about their pensions," he said.

The Government's plans, which could be implemented within the next 18 months, involve giving the lowest bidders the right to run each separate scheme. In some, but not all cases, the schemes' existing managers would be allowed to bid. Pensioners' current entitlements would not be affected.

Proposals for the NHS superannuation scheme, which covers 750,000 employees and 300,000 retired staff, came in a discussion paper to unions several weeks ago.

A Treasury spokesman said last night: "The market testing that is being carried out relates not to funds under management but simply to the administration of the schemes. This is all in line with the Government's policy of ensuring good administration and getting the best value for money."