22 June 2010
Former work and pensions secretary John Hutton will lead a review into public sector pensions, it was announced in the Budget.
The former Labour politician will head a commission that will review the disparities between public and private sector pensions. The public sector pension commission will cover schemes in the civil service, the NHS, teaching and local government. The review, which formed part of the coalition agreement, will issue its interim report in time for the Spending Review in September and will produce its final report for the 2011 Budget.
Chancellor George Osborne said: ‘We need to deal with the cost of public service pensions. This is one of the greatest long-term pressures facing our nation’s finances.’ He added that the reforms must be ‘fair to the taxpayer and to people who work in the public sector’.
He quoted figures released by the Office for Budget Responsibility that showed a £10bn shortfall between pension contributions by individuals and payments to the unfunded pensions they support.
Bob Summers, chair of CIPFA’s pensions panel, welcomed the establishment of the commission. He told Public Finance there was a need to look at the affordability of the schemes. However, he urged the commission to recognise differences in pensions across the public sector.
‘There are difficult decisions to be made. For example, there is a misconception about the Local Government Pension Scheme, where the average pension payment is only £4,000. In this scheme, the majority of contributors are low paid. Will the commission find it difficult to exempt this scheme, because of the low earners?’
Professor David Blake, director of the pensions institute at Cass Business School, City University, told PF the review was timely.
‘The current system is unsustainable,’ he said. ‘Workers in the private sector, who are four-fifths of the workforce, have lost their defined benefit pensions, yet still have to pay the taxes to underwrite the gold-plated pensions in the public sector.’
But Unison general secretary Dave Prentis said that the coalition government has misrepresented the issue.
‘Only three years ago, public sector pensions went through massive changes to make them sustainable and affordable. Since then, there has been constant sniping and carping by the Tories and Liberal Democrats about unreformed, gold-plated pensions, quoting grossly misleading figures to create a climate for cuts.’
