Government enters a pensions minefield : COMMENT

The Government is being rather daring in deciding to privatise the administration of the pensions of civil servants, teachers and other public service employees.

If this were to go wrong in the handover stages, the public relations disaster would make Group 4's teething troubles with prisoner security look like a non-event. Imagine the political impact of thousands of elderly pensioners complaining about being robbed through mistaken or late payments.

Not that the job is particularly challenging, since this kind of work is the clerical equivalent of a factory production line and the money ultimately comes from government. It seems implausible that there is not room for efficiency gains by contracting out. If the consultants advising the Government are to be believed, there could be savings of 20-25 per cent on the £150m a year or so it costs to administer the various public sector schemes.

But like any new piece of equipment, there are bound to be difficulties as private companies start up their new streamlined computer plants to take over processing from the state agencies that now conduct the work. It is fair to say that of all the many good things that the City has contributed to the nation's welfare, efficient back-office systems are not the first thing that springs to mind.

It is not perhaps a coincidence that the teachers'additional voluntary contribution scheme, which is already administered outside the civil service by the mighty Prudential, has generated a rash of complaints to the newspapers. Significantly, they are mainly about administrative matters.

As pensions intrude directly into the lives of very large numbers of people, their reaction to even quite minor mistakes can be extraordinarily fierce. The teachers' pension scheme alone has 750,000 existing members and 350,000 already retired. It is a safe assumption that a good proportion have no great admiration for the concept of privatisation. They will surely seize on any perceived lapse in administration with zeal.

This makes the case for the Government to proceed with extreme care. It seems reasonable for there to be pilot projects to test administration systems rather than the wholesale switch in the shortest possible time that the Government appears to intend.

There should also be safeguards, including a high level of security for the databanks, a complete ban on the sale of junk mailing lists based on them and stringent requirements for high minimum standards of service.

But as with any factory, it is possible to measure throughput and productivity and check value for money. It should be easy to demonstrate substantial savings from privatisation at the cost of relatively few civil service jobs.

The political row over this change is misdirected, like so many to do with contracting out. In fact, there is a good case for going further, by bringing in fund management expertise and switching to a fully funded basis, just like ordinary private sector pensions.