More History Lessons

Unfunded public sector schemes have been in the news recently, principally because of their cost. More interesting is the issue of their long-term future.

In 1839, police forces were set up across the country and pension arrangements established as a key part of their recruitment strategy.  In London, although members’ compulsory contributions to the new scheme were intended to be invested in secure government securities, in practice the fund operated on a pay as you go basis, with current income used to pay pensions. The hard nature of police work meant that it was unusual for officers to reach normal retirement age, and as a result the earlier award of incapacity pensions assumed particular importance.

Balancing contribution income and pensions awarded must have been difficult. The viability of the fund came to depend on the size of the contributing membership and medical judgements of incapacity- and there may have been times when those judgements were influenced by the knowledge that the force itself could not afford to lose the numbers of officers applying for retirement.  After prolonged industrial unrest, new arrangements were eventually introduced.

All pay as you go schemes are vulnerable to their sponsor becoming unable or unwilling to pay. Although rarely a problem for public sector schemes, if gloomy economic forecasts are realised, taxpayers remain under pressure and the gap between public and private pension provision continues, both support conditions are likely to come under scrutiny.

Pensions Archive Trust Director, Jane Marshall

This article was first published in the February 2025 edition of Pensions Age magazine.