By Jaimie Kaffash
23 November 2010
The value of public sector pensions has fallen by a quarter even before reforms in Lord Hutton’s review are implemented, according to a study published today.
A report from the Pensions Policy Institute, funded by the Nuffield Foundation, shows that most of the cost savings come from the coalition government’s decision to link pensions to the consumer price index rather than the retail price index. Recommendations made by the Hutton Review could go on to reduce costs by a third over the next 40 years.
Niki Cleal, the institute’s director, said: ‘The combined impact of the last Labour government’s reforms and the coalition government’s recent announcement on CPI indexation has reduced the value of a public sector pension to a typical public sector worker by around 25%.
‘As a result, the future cost of public sector pensions is now projected to fall from 1.2% of gross domestic product today to 1% of GDP by 2050, even if the government undertakes no further reforms to the public sector pensions.’
This fall is equivalent to £3bn in today’s money, Cleal added.
She went on: ‘But as Lord Huttonhas said, there are arguments for making the present system fairer, both between the public and the private sectors – where public sector pensions still remain more generous – and between staff within public sector schemes.
‘Under the current final salary arrangements, high fliers do much better than lower earners.’
A spokesman for the Public and Commercial Services union told Public Finance: ‘We are deeply concerned about the change from RPI to CPI because as well as wiping billions of pounds off the value of pensions, it is particularly unfair on working civil servants who are in the new career average scheme introduced in 2007, which gets revalued every year.
‘At a recent Trades Union Congress event, the pensions minister Steve Webb argued that CPI was a more appropriate measure for pensioners because it doesn't include mortgages, but for many of these existing staff, a mortgage is an important outgoing.’
